The stock market crash earlier in the year has thrown up some fantastic opportunities for long-term investors. Right now, plenty of high-quality UK shares trade at rock-bottom valuations. Invest today, hold for the long term, and you should be rewarded.
In this article, I’m going to highlight three beaten-up UK shares that look cheap at present. I’d be happy to buy all three for my portfolio today.
‘Britain’s Warren Buffett’ loves this UK stock
First up, alcoholic beverages giant Diageo (LSE: DGE) which owns a number of top brands including Johnnie Walker and Tanqueray. This stock is liked by legendary fund manager Nick Train – the man they call ‘Britain’s Warren Buffett’.
Prior to Covid-19, Diageo shares were flying. DGE was the FTSE 100 stock that everyone wanted to own. This year, however, the stock has been crushed in the stock market crash. I see the recent share price weakness as a fantastic opportunity to build a position in a high-quality FTSE 100 stock at a great price.
Diageo does face near-term challenges due to Covid-19, of course. However, in the long term, the growth potential is huge. The company believes that by 2030, an extra 750m consumers worldwide will be able to afford its spirits. That’s more than twice the current US population.
Diageo shares currently trade on a forward-looking P/E ratio of about 20 using next year’s earnings forecast. That’s cheap for DGE. I’d buy this UK stock now while it’s out of favour.
Online shopping boom
The next stock I like is DS Smith (LSE: SMDS). It’s a leading provider of sustainable packaging. That sounds a bit boring, I know. But hear me out.
The reason I like DS Smith is that the company generates a lot of its revenues from e-commerce (online shopping). And as you probably know, this industry is booming at the moment. As a result of Covid-19, we’re all doing far more shopping online. This is a trend that isn’t going to reverse any time soon. DS Smith should benefit. Recently, the company said that structural drivers for its sustainable packaging give it confidence for the future.
DS Smith shares have been hammered this year. Year to date, the stock is down 30%+. That’s left it trading on a forward-looking P/E ratio of about 11. That’s a bargain, in my view. I think the stock will rebound.
Growth potential
Finally, another dirt cheap UK share I’d buy right now is Prudential (LSE: PRU). It’s a leading provider of financial services with a focus on Asia.
In the near term, Prudential faces a few challenges. Disruption from Covid-19 and political uncertainty in Asia has impacted the company. In the long term however, the growth story looks compelling. In Asia, demand for insurance and savings products is likely to be strong over the next decade and Prudential is well placed to benefit.
“Our differentiated product and geographic portfolio is well positioned to meet the health, protection and savings needs in these regions, where insurance penetration is low and demand for savings solutions is rapidly developing,” the company said recently. It’s worth noting that Prudential reported first-half adjusted operating profit growth in Asia of 14%, with double-digit adjusted operating profit growth in nine Asian markets.
Prudential shares currently trade on a forward-looking P/E ratio of about 10. I think that’s cheap. I’d buy this UK share today.