October 22, 2020

2 cheap UK shares I’d buy in October

There are many cheap UK shares investors can buy right now. However, some of these stocks appear to be better investments than others.  As such, I’m going to take a look at two to blue-chip FTSE 100 stocks I believe are currently undervalued. 



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Cheap UK shares on offer

Ever since the company separated from its former parent, Prudential, towards the end of last year, shares in M&G (LSE: MNG), have struggled. One of the reasons why investor sentiment towards the business has remained depressed seems to be the fact the financial services group has yet to establish a reputation. 

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The company has only been an independent business for around a year. We’ve not even had a full year of financial results from the firm. This makes it difficult to establish how well M&G has been doing financially.  

I think this could be a great opportunity. Due to the uncertainty surrounding the business, M&G’s valuation has remained depressed. It also offers a market-beating dividend yield. At the time of writing, the stock supports a dividend yield of 12.3%. It also trades at a forward price-to-earnings (P/E) multiple of around 4. 

These metrics suggest the stock offers a wide margin of safety at current levels. Therefore, despite the uncertainty surrounding the business, I believe investors who buy M&G as part of a diversified basket of cheap UK shares, could achieve high total returns in the long term. 

Melrose hit by the crisis

Another FTSE 100 stock currently on my radar is Melrose (LSE: MRO). The coronavirus crisis has significantly impacted this engineering giant.

In its latest trading update, the company reported a near-25% decline in revenues for the six months to July. Asset write-downs and restructuring costs pushed the group into an overall loss of £685m for the period. 

Despite this setback, management is optimistic about the future. So am I. Melrose is one of the UK’s most skilled engineering giants. Over the past decade, it’s proved highly adept at managing engineering businesses through the peaks and troughs of the economic cycle. 

The company’s stable of engineering businesses should help power the recovery. Melrose’s operations provide a range of essential parts for different sectors. This gives the firm a relatively defensive nature and should allow it to ride the economic recovery as it takes hold.

Supplying critical parts is a relatively defensive business because customers always choose quality over price. This suggests that when the economy starts to recover, customers should return to Melrose’s offering. 

As such, even though the company is currently having to deal with multiple headwinds, I reckon the stock could have tremendous potential in the long run.

Indeed, between the beginning of 2016 and the beginning of this year, Melrose turned every £1,000 of investors’ cash into £4,600. 

That’s why I think this could be one of the best cheap UK shares to buy right now. 

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Rupert Hargreaves owns shares in Prudential and M&G Plc. The Motley Fool UK has recommended Melrose and Prudential. 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.

The post 2 cheap UK shares I’d buy in October appeared first on The Motley Fool UK.

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