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Tesco share price: should I buy these 2 cheap UK shares today?

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·3-min read
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I think that recruiter Robert Walters (LSE: RWA) is an attractive — and cheap — UK share to ride the economic recovery. Latest financials from the company in April showed how conditions in its key markets have recovered strongly in the past few months. A recent survey from the Recruitment and Employment Confederation indicates that hiring in its British marketplace has continued to strengthen too. This showed that demand for staff has risen at its fastest pace for 23 years in May.

A fresh surge in Covid-19 cases and returning lockdowns in its markets could see trading at Robert Walters crumble. But right now the encouraging economic outlook in Britain and large parts of Asia Pacific (it sources two-thirds of net fees from these two regions) makes me believe that this UK share is an attractive buy. Chinese GDP soared by a record 18.3% in the first quarter.

Analysts think earnings at Robert Walters will soar 180% in 2021. This results in a rock-bottom forward price to earnings growth ratio of 0.2. Any reading below 1 suggests that a stock could be undervalued by the market.

Another cheap UK share to buy?

Another cheap UK share that’s enjoyed strong recent trading is Tesco (LSE: TSCO). Thanks to its market-leading online operations this FTSE 100 share has enjoyed a roaring trade during Covid-19 lockdowns. Sales here rose 7% during the 12 months to February.

A shopping basket filled with Tesco own-brand goods
A shopping basket filled with Tesco own-brand goods

Coronavirus restrictions in the UK are being steadily unwound as vaccine rollouts bring infection rates down. But this doesn’t mean that grocery shoppers will log off en masse and charge back into the stores of industry disruptors Aldi and Lidl. Firstly, the pandemic has created a mass of new e-retail customers who will remain loyal to Tesco’s online proposition even as the public health emergency recedes.

And secondly, changing attitudes towards health and hygiene could solidify the popularity surge of online grocery over in-store visits. A survey from shopping list app Ubamarket shows that 57% of Britons say that “their perception of what it is to feel safe in supermarkets and retail venues has permanently shifted”. And 52% of citizens consider supermarkets to be “the most infectious places to contract coronavirus.

Tesco’s share price: low for a reason?

Right now the Tesco share price looks really cheap on paper. City analysts think earnings here will soar 147% in this financial year. This creates a forward PEG ratio of just 0.2.

That being said, I still not tempted to buy this cheap UK retail share. I think Tesco’s share price is low because it still faces colossal competitive pressures that will likely worsen. The rapid expansion of Aldi and Lidl threatens to pull more and more shoppers out of Tesco’s stores. Meanwhile all of the FTSE 100 firm’s established rivals, like Sainsbury and Morrisons, are improving their own online operations to exploit the rise of e-commerce. With Amazon getting in on the action, too, and the German discounters also dipping their toe into the online grocery segment, I believe buying Tesco shares is a risk too far for my portfolio.

The post Tesco share price: should I buy these 2 cheap UK shares today? appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Morrisons and Tesco and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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 2021