A strategy of buying cheap UK shares has been very successful in the past. It’s allowed an investor to use weak investor sentiment and temporary uncertainty to their advantage. Certainly, in terms of being able to purchase high-quality companies for less than they are worth.
With the FTSE 350 continuing to trade below its level from prior to the pandemic, there are a number of opportunities to buy and hold cheap stocks at the present time. Buying them through a tax-efficient account such as a Stocks and Shares ISA may provide greater returns due to its tax advantages.
With that in mind, here are five UK stocks that could be worth buying now after they’ve experienced mixed performances in the last year.
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Cheap UK shares with sound strategies
Many of today’s cheap UK shares could benefit from changing strategies in response to the pandemic. For example, oil and gas company BP is now seeking to invest greater amounts of capital in low-carbon assets. That move could become more relevant as the world economy emerges from the current crisis. It also has the potential to benefit from an improving world economy that could have a positive impact on the oil price, which currently stands at an 11-month high.
Similarly, FTSE 100 retailer Next is adapting to changing consumer trends through increasing its focus on digital sales. The company already generates more than half of its revenue from online channels. But this is likely to grow as consumers become more comfortable in purchasing goods online. Therefore, it may be able to extend its dominant market position over the coming years.
An improving economic outlook could benefit these stocks
While many cheap UK shares are likely to benefit from an improving economic outlook, some may be bigger gainers than others. Notably, banks such as NatWest are likely to enjoy improving operating conditions as GDP rises and consumer confidence returns. This may increase demand for new loans, as well as reduce default rates on existing credit products.
Meanwhile, cheap UK shares such as British Land may benefit from increasing commercial property prices. Currently, its shares trade at around two-thirds of net asset value. This suggests that, unless there’s a marked fall in property prices over the coming months and years, its shares could be very cheap at the present time.
In the long run, companies such as Diageo could capitalise on growth trends in emerging economies. It’s used the current crisis to make acquisitions and strengthen its financial position through streamlining its operations.
The company enjoys a breadth of products and the high degree of customer loyalty. And that should lead to stronger profit growth in the long run. It turn, that should also lift its share price after a volatile year compared to its history of resilience.
