Now is a great time to go shopping for cheap UK shares. British stock prices are, broadly speaking at least, moving in the right direction. But increases are largely modest as concerns over the economic outlook dampen investor appetite. This leaves a lot of top-quality stocks trading at prices that could be considered too low to miss out on.
I think these cheap UK shares could be some of the best British stocks to buy right now. Here’s why I’m thinking of snapping them up for my Stocks and Shares ISA.
Sports star
City brokers think annual earnings at 888 Holdings (LSE: 888) will soar more than 750% in 2021. This leaves the company trading on a forward price-to-earnings growth (PEG) ratio of 0.1. Any reading below 1 suggests a stock could be undervalued by the market.
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888’s brands and large geographical footprint leave it well-placed to ride the electrifying growth in the online betting industry. This is an opportunity I expect to continue, regardless of the state of the broader economic recovery.
Wednesday’s half-year update shows why I’m so bullish on this cheap UK share. Total revenues soared 29% in the six months to June, and kept rising by mid-single-digit percentages despite the re-opening of the retail and leisure sectors in May and June.
As a long-term investor, I’m also excited by the steps 888 is taking to expand in the US as sports betting is legalised across a growing number of states. Though be aware that a tightening of gambling regulations in its markets is an ever-present threat that might significantly hamper future growth. Bans on fixed-odds betting machines in the UK, for instance, have hammered profits for many gambling operators in recent years. And more earnings-sapping action in 888’s home market could be coming down the pipe in the near future.
A cheap UK share with 5.5% dividend yields
Greencoat UK Wind (LSE: UKW) is another cheap UK share that should deliver decent returns even if the economic recovery stalls. Investment in green technology is becoming more urgent as the climate crisis deteriorates. Spending in this field is particularly robust on these shores and encouragingly for this British stock in the wind energy sector. The government unveiled a £160m green energy investment plan over the summer.
Energy creation from wind energy is famously hard to predict. Thus, it can be more difficult to predict the exact levels of Greencoat UK Wind’s profits looking ahead. The high cost of operating and maintaining wind farms is another problem that can hit earnings growth at companies like this.
That said, I think Greencoat UK Wind’s low valuation more than reflects these troubles. City brokers think earnings at this cheap UK share will jump 59% in 2021. This leaves the stock trading on a forward PEG multiple of 0.2. I also think the energy business is a great income share thanks to its giant 5.5% dividend yield.
