2020 continues to be a confusing time for stock investors. A huge number of UK shares are trading on rock-bottom price-to-earnings (P/E) ratios. Some of these cut-price companies appear too good to miss at current prices. But how do you separate the oversold stars from the investment traps?
Here I’m looking at three UK shares trading on P/E multiples of 10 times and below. Should you buy them today or stay away?
High-risk stocks
Pendragon might be an attractive choice for value chasers owing to its forward P/E ratio of just 9 times. I think this UK share could prove a disaster for UK share investors though, as sales of big ticket items threaten to nosedive as the domestic economy struggles. Car retailers enjoyed a demand burst during the summer as lockdown measures were rolled back. But latest industry data suggests that this could be a flash in the pan. According to the Society of Motor Manufacturers and Traders (SMMT) new car registrations slumped 5.8% in August as sales to private individuals and businesses reversed.
For the same reason I’m prepared to give Dixons Carphone an extremely wide berth. Not even a rock-bottom P/E ratio of 10 times (and inflation-beating 2.8% dividend yield) are enough to tempt me in. Latest Office for National Statistics data showed that non-food retail sales remained at pre-pandemic levels in July. This is despite the gradual unwinding of lockdown restrictions. But tough economic conditions aren’t the only reason for Dixons to worry. Soaring e-commerce activity is also seeing rivals with stronger internet operations, like AO World, grabbing more and more business.
Better UK shares to buy today
Why take a gamble with any of these cheap, high-risk UK shares? I’d much rather invest my hard-earned cash in firms that will thrive as Covid-19 and Brexit hits the economy hard. This is why I’d happily buy Serabi Gold for my ISA. Precious metals prices appear on course for more meaty gains given the scary economic outlook. But this is not all. Gold values also look on course to keep rising as frantic money printing from central banks casts doubt over the value of paper money and boosts demand for ‘hard currencies’ like bullion. One final reason why Serabi Gold’s a better buy: the mining giant trades on a mega-cheap P/E ratio of 7 times for 2020.
There are many UK shares that trade on rock-bottom P/E multiples following the 2020 stock market crash. It’s true that plenty of top-quality companies have been unfairly washed out during the recent panic. However, a lot of UK shares like Dixons and Pendragon are ultra-cheap as they’re in danger of slumping again.
Fortunately there’s plenty of information available from experts like The Motley Fool to help you separate the genuinely brilliant UK shares from the duds. Spending just a few minutes reading their special reports could mean the difference between making a boatload of cash and enduring massive losses. And they’re completely free of charge too. So why not take a look today?