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Forget gold and buy-to-let. I’d buy these 2 cheap shares in an ISA today

Peter Stephens
·3-min read
Gold bullion on a chart
Gold bullion on a chart

Weak investor sentiment after the stock market crash means there are a wide range of cheap shares available to buy today. In some cases, their valuations may underestimate their long-term prospects.

This could mean they offer higher return potential than popular assets such as gold and buy-to-let following their recent price rises.

With that in mind, here are two UK shares that appear to offer good value for money. They could be worth buying in an ISA today and holding over the coming years.

An undervalued FTSE 100 stock among cheap shares

Oil and gas companies such as BP (LSE: BP) could offer good value for money relative to other cheap shares. The company’s recent quarterly updates have shown its financial performance has been severely impacted by a weak global economic economy that has caused the oil price to come under pressure.

In response, the company is seeking to become more efficient. It’s also shifting its investment away from fossil fuels and towards low-carbon assets. This is likely to be a costly exercise, but one that could provide the business with a sustainable growth outlook over the long run.

The BP share price has fallen by almost 60% since the start of the year. It now trades on a forward price-to-earnings (P/E) ratio of less than 10. This suggests investors have priced in the difficult operating environment faced by the oil and gas sector.

Therefore, it could be worth buying within a diverse ISA portfolio of cheap shares. Over time, the world economy’s recovery prospects and the company’s revised strategy could have a positive impact on its market valuation.

A FTSE 100 turnaround opportunity

Landsec (LSE: LAND) could also be an attractive purchase as part of an ISA portfolio of cheap shares. Of course, the commercial property landlord is currently experiencing challenging operating conditions. Recent investor updates have highlighted lower rent collection versus the previous year.

However, the company’s 45% share price fall since the start of the year means it now trades at less than half its net asset value. This suggests investors have priced in a severe decline in its financial performance and in the value of its assets. This may mean the stock has scope for a recovery as the economic outlook improves.

Landsec has a solid balance sheet that could provide it with the financial means to adapt to changing trends within the commercial property market. It has also paused dividend payments to conserve cash, while seeking to reduce operating costs where possible.

Clearly, investing in commercial property stocks is likely to mean significant risks in the short run as a weak economic outlook weighs on their prospects. However, the company’s low valuation, solid finances and the potential for an improving economic outlook could make it a worthwhile purchase in a diverse portfolio of cheap shares.

The post Forget gold and buy-to-let. I’d buy these 2 cheap shares in an ISA today appeared first on The Motley Fool UK.

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Peter Stephens owns shares of BP and Landsec. The Motley Fool UK has recommended Landsec. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020