With UK shares being sold off by panicking investors, I’m spoilt for choice when it comes to picking which fantastic cheap companies I should add to my portfolio.
After browsing through my watchlist, I’ve whittled down my selection to two top-notch businesses I believe offer the potential for outsized returns in the long run.
Let’s take a look.
Should you invest £1,000 in Treatt right now?
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One of the best UK shares to buy now?
The construction industry is known for its cyclicality. But with the US government signing a $1trn nationwide infrastructure bill, there’s plenty of work to last for years. And one prominent beneficiary of this is Somero Enterprises (LSE:SOM).
The company designs and manufactures concrete-laying screed machines. It’s hardly the most exciting business out there, but it plays a vital role in the sector, reducing both time and labour requirements to complete infrastructure projects while achieving higher quality results.
Like many other UK shares, Somero’s stock price has been hammered in the last 12 months, dropping by 25%. The latest results show performance in its flagship US operations continues to thrive. And management has successfully managed to raise prices to offset inflationary pressures.
However, the situation in its other markets, namely Europe and China, is causing grief. Shipping delays and ongoing Covid restrictions have started impacting margins which seem to have spooked investors.
Yet, while these are valid concerns, they currently look like short-term problems, in my eyes. Therefore, I can’t help but see the recent drop in share price as an opportunity to bolster my existing position within my portfolio.
Another bargain hiding in plain sight?
Somero isn’t the only business to have lost a quarter of its share price lately. Treatt (LSE:TET) has taken quite a big blow on the back of its latest results.
As a reminder, the company is a chemical manufacturer. It uses natural ingredients to design flavours and fragrances for drinks, hygiene and fragrance products. Treatt has fallen on tough times lately. The firm has struggled to pass on all of its inflationary costs to customers. Meanwhile, significant operational disruptions in China have caused management to cut profit guidance, from £21.7m to £15.3m.
Given the current fearful state of the stock market, it’s not surprising to see investors sell off shares of this UK business.
But, as horrendous as all this looks, it’s worth pointing out that the firm’s order book continues to grow. To me, that indicates demand for its products remains strong. Furthermore, just like Somero, the problems plaguing this company all look like short-term issues that may naturally resolve themselves.
With the long-term potential of this young enterprise still intact, and the balance sheet remaining strong, I can’t help but feel a buying opportunity for my portfolio has emerged.
