2 of the best cheap UK shares to buy!

Stock market volatility has heated up in recent days. So I’m looking for the best cheap UK shares to buy on the dip.

Further market choppiness could be on the cards as concerns over rocketing inflation worsen. But this doesn’t put me off from buying British stocks. I’m happy to endure some discomfort in the near term if there’s a good chance the shares I buy will deliver solid long-term returns.

Here are two top stocks I’m considering buying right now. I think they could be too cheap for me to miss.

Software star

Around a year ago, I bought Keywords Studios shares for my portfolio. I thought the technical and creative services it provides to the video games industry made it a top growth share to buy.

I think now’s the time to boost my exposure to the fast-growing games sector. It’s why I’m thinking of investing in games developer Frontier Developments (LSE: FDEV).

The company’s share price has slumped in 2022 as higher costs have pushed it into the red. Frontier reported an operating loss of £1.3m in the six months to November because of higher licensing royalties and more disc sales (margins on physical formats are lower than they are on digital sales).

Buying on the dip

It’s my opinion though that recent weakness represents a great dip buying opportunity. City analysts think Frontier Developments’ earnings will soar 125% year on year in the upcoming financial year (to May 2023).

Consequently, the software designer trades on a forward price-to-earnings growth (PEG) ratio of just 0.2. A reading below 1 suggests that a stock could be undervalued.

I think Frontier’s profits could soar this year and well beyond as the games industry — which is already worth more than the music and movie sectors combined — grows rapidly.

Analysts at Mordor Intelligence for instance think the global games business will be worth a whopping $340bn by 2027. That compares with the $198bn that’s it was valued at last year.

Takeover talk

Investing in games studios can be dangerous given how competitive the marketplace can be. There are thousands of software developers across the globe jostling to produce the next winning title.

This is why I like Frontier Developments in particular. I’m not saying the company is immune to the threat from rival developers. But it already has a range of ultra-popular games franchises on its books, like Jurassic World and Elite Dangerous, that already have large and established fanbases.

I also think buying a game developer like Frontier Developments could be a good idea as industry consolidation heats up. Latest action this week saw Japanese developer Square Enix sell several Western studios to Embracer Group for a cool $300m.

The sale also includes the rights to popular franchises like Tomb Raider and Deus Ex. I think Frontier (like Codemasters and Sumo Group before it) could be the latest London-listed software business to attract takeover attention.

A penny stock on my radar

I’d also use recent price weakness at Sylvania Platinum (LSE: SLP) to grab a brilliant bargain. The business has fallen back into penny stock territory below £1 as fears over the global economy have grown.

This means that Sylvania shares trade on a forward price-to-earnings (P/E) ratio of 4.1 times, well inside bargain-basement territory of 10 times.

On top of this, Sylvania Platinum now boasts a mighty dividend yield of 5.6% following these falls. And this year’s predicted dividend is covered 4.3 times by anticipated earnings, too, meaning there’s a good chance that payouts could meet broker expectations.

Safe-haven metals

I like South African mining stock Sylvania Platinum for a couple of reasons. Firstly, the platinum group metals (PGMs) it produces are safe-haven investment metals like gold and silver. This means that they often rise in value when inflationary pressures increase and doubts over global growth intensify (otherwise known as a ‘stagflationary’ environment).

This makes them ideal commodities for the here and now, then. What’s more, platinum and palladium prices could experience sustained strength if the ban on Russian metal exports carries on. Russia is the second-largest platinum producer on the planet.

There’s good reason then to expect Sylvania Platinum’s profits to impress in the current environment. Indeed, platinum has moved back towards $1,000 per ounce in recent days as concerns over stagflation have grown.

Cleaning up the environment

I also think Sylvania’s a good stock for me to buy as the fight against climate change intensifies. The material it produces is used in massive quantities to reduce the emissions that car exhaust systems create.

Legislation has tightened in recent years (and especially in China) in order to cut car pollution, meaning that greater loadings of platinum-like metals are needed in cars. I think the rules could become even stricter too as worries over global warming reach fever pitch.

Platinum’s extra role in the green revolution

It’s also important to note platinum’s critical role in the production of green hydrogen. Demand for this low-carbon power source is also tipped to balloon as the world moves away from fossil fuels.

Platinum is able to handle excessive temperatures and complex chemical changes, making it an ideal fuel cell catalyst in the electrolysis process. It’s why the World Platinum Investment Council believes that platinum demand for use in green hydrogen production could total 600,000 ounces between now and 2032.

It’s possible that the adoption of green hydrogen could pick up even further following the war in Ukraine, too, as the world turns its back on Russian oil and gas exports.

I am concerned about what impact subdued car-building activity will have on Sylvania in the immediate future. Auto production has slumped across the globe due to huge semiconductor shortages. But on balance I think the benefits of owning this cheap UK share over the long term outweigh these risks.