With a potential global recession looming, the stock market has had a tumultuous few months. I think this volatility offers the perfect entry point to buying cheap UK shares.
Low-level investor sentiment and current market correction makes for a great opportunity to find undervalued companies to invest in. When I’m building my portfolio, I’m looking for companies that are able to weather short-term problems such as rising inflation and ultimately produce long-term gains.
If I had £1,000 spare this September, I would invest £500 across two cheap UK shares – one in the retail industry and the other in defence. Let’s take a look at them.
Retail
British retail has had a tough time in recent years. Not only were plenty of businesses forced to shut during Covid-19, but since reopening many have struggled given the rising costs of running a business and consumers spending less due to a rise in the cost of living.
One company I think could bounce back is WH Smith (LSE: SMWH). Down just over 6% in the last year, I believe that the current price of 1,466p looks like an attractive entry point.
To see how the company might perform in the long term, I’m looking at data from the travel industry as a large part of WH Smith’s revenue comes from its airport outlets.
In June, WH Smith said the travel division was performing particularly well, so much so that full-year results are now set to be “at the higher end of analysts’ expectations”.
As international travel continues to recover, WH Smith’s airport footfall will increase and this could lead to potential expansion – something the company is already looking into after the success of its Chicago and Las Vegas airport stores.
Of course, WH Smith’s success relies on a strong global economy and is extremely dependent on the travel sector, an industry that has seen much uncertainty recently given problems such as staff shortages.
A potential decrease in winter holiday-goers could also prolong WH Smith’s recovery as its airport revenues are likely to be lower than anticipated, at least in the short term.
Defence
The other stock I would invest £500 in is one of the UK’s largest defence contractors, QinetiQ (LSE:QQ).
The FTSE 250 stock is up 23.16% year to date, partly driven by the increase in military spending following Russia’s invasion of Ukraine.
I believe the stock could go up further in the coming years given the new Prime Minister’s pledge to increase defence spending to total 3% of GDP by 2030. Other countries such as those that are NATO members may increase spending in this area given growing geopolitical tensions and threats.
QinetiQ reported strong Q1 earnings recently. It has a cash position of £225m, and during its results the company said it predicts “mid-single digit organic revenue growth”, which is impressively high for a UK company in this sector.
73% of QinetiQ’s revenue comes from the UK government, meaning the company is over-reliant on the government’s funding and contracts. If defence spending is cut in coming years, which is a possibility given the current economic climate, then the stock may not see the current growth levels it predicts.
The post I’d invest £1,000 in these cheap UK shares this September appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin“ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
This FTSE 250 stock is up nearly 40% in 2022! Is it too late to buy shares?
Yasmin Rufo has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.