Buying cheap UK shares today could prove to be a very profitable move in the coming years. Indexes such as the FTSE 100 and FTSE 250 have solid track records of recovery. Therefore, as the economic outlook improves, stock market investors could enjoy improving returns.
By contrast, the returns on cash savings accounts and Cash ISAs could prove to be very disappointing. Low interest rates may mean that they even fail to beat inflation in some cases.
With that in mind, now could be the right time to buy these two FTSE 100 stocks. They appear to offer further scope for capital growth after their recent gains.
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An undervalued stock that could outperform other cheap UK shares
While the Fresnillo (LSE: FRES) share price has surged 93% higher in 2020, it continues to offer a margin of safety relative to other cheap UK shares. For example, the gold and silver miner is forecast to record a 75% rise in its net profit this year, followed by a further increase in earnings of 70% next year.
Despite this very positive outlook, its shares trade on a price-to-earnings growth (PEG) ratio of just 0.5. This suggests that it offers good value for money even after such a large share price gain.
Of course, the prospects for precious metals prices are uncertain. However, this risk appears to be factored in to the company’s valuation. And, while it has experienced disruption and operational challenges in the last couple of years, its recent updates have suggested that it is making progress on its development projects.
Therefore, it may deliver further capital growth and appears to be attractive relative to other cheap UK shares.
An improving business outlook after a challenging period
Persimmon (LSE: PSN) could also outperform its index peers in the coming years. The housebuilder’s recent results highlighted the progress it has made since lockdown measures began to be lifted.
For example, it has a current order book that is 21% higher than it was at the same point in the previous year. It has experienced strong demand for its properties, with government support such as the stamp duty holiday and Help to Buy continuing to catalyse the wider housing sector.
Of course, the uncertain economic outlook could negatively impact Persimmon’s share price. However, the company’s price-to-earnings (P/E) ratio of 12.7 suggests that it offers good value for money relative to other cheap UK shares. As such, now could be the right time to buy and hold it for the long run.
Cheap stocks versus cash savings
Shares such as Persimmon and Fresnillo may experience high volatility in the short run. But they offer greater return potential than cash savings in the long run. As such, with interest rates currently being relatively low, now could be an opportune moment to buy them as part of a diverse ISA portfolio of stocks.
