December 5, 2022

Looking for cheap UK shares to buy? I think these 3 could be big winners!

There’s no shortage of cheap UK shares to buy after this year’s stock market crash. Today I’m looking at a blue-chip giant and two mid-cap stocks that are all on offer at knockdown prices.

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Compass pointing towards ‘best price’

Covid-19, the US election and Brexit could mean markets remain volatile in the short term. However, I reckon these three cheap stocks could be big winners for investors with a long-term perspective.

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UK shares to buy #1

At 633.6p, shares of FTSE 100 advertising giant WPP (LSE: WPP) are 41% down since the start of the year. This is more than double the fall of the FTSE 100 index.

WPP’s recent half-year results showed a 12% drop in revenue, and a hefty statutory loss. The latter was largely down to non-cash goodwill impairments of £2.5bn related to historical acquisitions. On an underlying basis, the group remained profitable, albeit with profits some 44% below last year’s first half.

WPP has £4.7bn of liquidity, helped by the £2.4bn sale of 60% of its Kantar business at the back end of last year. Furthermore, with an industry-leading £3.1bn of new business wins in the first half of the current year, its pipeline remains strong. As a result of its robust financial position, the board declared an interim dividend of 10p a share.

Trading at 11.4 times this year’s Covid-depressed forecast earnings, and with a potential 4.4% dividend yield, I’d be happy to buy WPP for the long term.

UK shares to buy #2

Bingo halls-to-digital gaming group Rank (LSE: RNK) has seen its shares fall 55% this year. However, I reckon the current 125p price represents a great opportunity for long-term investors to buy in  to this well-established FTSE 250 entertainment business.

Rank released results for its financial year ended 30 June yesterday. As expected, it was a year of two halves, and of different stories for its physical venues and digital sites. For the year as a whole, group revenue was down 15%, comprising a 22% fall in venues and a 23% rise in digital. The business remained profitable on both a statutory and underlying basis.

It’s early days, but management reported encouraging progress since venues were allowed to reopen in July and August. We were also told the board is committed to resuming dividends when circumstances permit. I think a rating of 15.3 times forecast earnings for the year to June 2021 is cheap for this defensive business.

The biggest knockdown price of all!

At 118.1p, shares of travel group National Express (LSE: NEX) are an eye-popping 75% down this year. I rate this among the best cheap UK shares to buy today, and another potential big winner for long-term investors.

National Express’s multi-year record of strong growth will be disrupted this year. As travel restrictions came in due to the global pandemic, its bus, coach and trains operations — at home and abroad — moved from ‘full steam ahead’ to ‘dead slow’.

However, it worked quickly to secure £1.5bn of new sources of funds, including a well-supported £230m equity raise. It’s now positioned to survive in the event of another round of wholesale lockdowns in the winter, and only a very gradual recovery over 2021.

While 2020 is set to be a loss-making, and dividend-less year, I rate National Express a great long-term buy. It’s trading at just 3.4 times its pre-pandemic earnings, and has been winning new contracts since.

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G A Chester 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.

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