After the recent stock market crash, I think many cheap UK shares on the market could produce high total returns for investors.
Today I’m going to take a look at three such businesses that I think could help you retire early.
Shares in Dixons Carphone (LSE: DC) have plunged to this year. However, according to the company’s latest trading update, its underlying performance has been better than expected.
Online sales more than tripled year-on-year while stores were closed, and have continued at more than double last year’s sales since stores reopened.
This has offset the impact of the coronavirus lockdown on the group’s operations. Analysts are forecasting earnings growth of around 90% for the company this year, following a significant loss in its last financial year.
Based on these projections, the stock is trading at a forward price-to-earnings (P/E) multiple of 8.3. That’s compared to the retail sector average of 13.8. This suggests the stock offers a wide margin of safety at current levels.
If they return to the sector average multiple, shares in Dixons Carphone could leap higher by 66%.
Brick manufacturer Ibstock (LSE: IBST) is hardly an exciting business, but it provides an essential product for the construction industry. That said, the group slumped to a loss in the first half of the year as the lockdown hit trade.
Nevertheless, like many cheap UK shares, analysts are expecting the firm to return to growth in 2021.
I reckon it is highly likely that the company will meet City growth projections. The UK is facing a structural shortage of housing, and the government is trying to stimulate building across the country. This may lead to increased demand for bricks, which would be good news for Ibstock.
Indeed, before the crisis, there were already signs that increased the demand for building products was pushing up prices and reducing availability across the country. If the market returns to this state, I think Ibstock has the potential to produce large total returns for investors from current levels.
Historically, the company has returned around 50% of earnings to investors through dividends. If the dividend is restored at 2019’s level of 8.2p per share, the stock will yield 5.6% at the current price.
Finally, I don’t think any basket of cheap UK shares would be complete without including Rank Group (LSE: RNK). Like many hospitality businesses, the casino operator shut all of its venues in the coronavirus lockdown.
Following the reopening, customers have returned quickly. In its latest trading update it shows revenue at its casino and bingo halls has returned to around 70% of previous levels since reopening in July and August. The group’s online and digital offerings have also provided a valuable income source.
Before the crisis, Rank’s revenue was growing at a double-digit annual clip. It might take some time to return to this rate of growth, but I think this historical performance shows the firm’s long-term potential. As such, I believe that now could be an excellent time to snap up a share of this business while it trades at a low level.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Ibstock. 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.