The stock market crash has prompted some investors to avoid cheap UK shares. As many companies are currently facing highly uncertain outlooks, that’s understandable.
However, long-term investors could benefit from buying undervalued London-listed stocks after the recent downturn. In time, they may yield robust returns, improving your financial prospects.
With that in mind, here are two FTSE 250 stocks that appear to be undervalued. They could be worth buying in the next few weeks to take advantage of their current valuations.
Cheap UK shares
Domino’s Pizza (LSE: DOM) seems to be one of the few companies benefiting from the current crisis. As other businesses have slashed staff numbers to cut costs, the pizza chain has hired an additional 5,000 workers this year to meet increased supply.
Its latest trading update shows the strength of the business. Sales in the UK and Ireland increased by 19% for the 13 weeks to the end of September. The government’s VAT cut help boost demand.
Based on this jump in sales, City analysts reckon the group will earn £71m this year. That’s up from £49m in 2018. Analysts also believe the jump in income will allow management to hike the company’s dividend payout by more than 100% to 9.4p for 2020. That implies the stock offers a dividend yield of 2.5% of current levels.
Despite this impressive performance, the stock looks cheap after this year’s stock market crash. Shares in Domino’s are currently changing hands at a forward price-to-earnings (P/E) multiple of 21, that’s compared to a valuation of 32 for its US-based peers.
As such, I think the stock could be worth purchasing as part of a diversified basket of UK shares in October.
Stock market crash bargain
Investor sentiment towards the Hipgnosis Songs Fund (LSE: SONG) has deteriorated since the beginning of the year. The company was founded to purchase music royalty rights. It pays upfront for the rights to songs, which then generate a steady stream of income for the firm and its investors.
This business model is yielding results. The stock currently offers a dividend yield of 5p per share, which is funded by music royalty income. Based on the current share price, this gives the stock a dividend yield of 4.3%.
At a time when so many other companies have reduced or eliminated their dividends, Hipgnosis’ payout looks highly attractive. The business is also, to a certain extent, pandemic proof. Even at the height of the lockdown restrictions, consumers were still able to listen to and purchase music.
Management is continuing to build the group’s music royalty portfolio. This should help the company grow its distribution in the years ahead.
After the stock market crash, shares in the income champion are currently changing hands at a P/E of 9.8. This valuation, coupled with the company’s healthy dividend payout, suggests to me this business could make a great addition to any portfolio of cheap UK shares.
The post Stock market crash: two cheap UK shares I’d buy in October appeared first on The Motley Fool UK.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Domino's Pizza. 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