UK share prices have rallied since early November there are still plenty of top stocks trading too cheaply today, I feel. It’s a drum we beat regularly here at The Motley Fool. And it’s a theory that many City brokers are expressing as we move into 2021 too.
The outlook for the UK economy might be grim due to a mix of a long Covid-19 hangover and an uncertain Brexit solution. But the prospect of a global economic rebound following solid coronavirus vaccine news is compelling for UK share investors. We could be at the start of a new bull market. And I’m still buying for my Stocks and Shares ISA to capitalise on any stock market rebound.
Small-caps tipped to continue outperforming
A recent survey from MBH Corporation suggests that small-cap UK shares, as well as US and German small-caps, are particularly good investments right now.
The investment specialists say that 80% of professional investors “think small and micro-caps are a good investment opportunity in the current market”. And of the 117 investors it surveyed, a whopping 76% reckon that investors in UK shares should increase their exposure to smaller-cap stocks during the next six to 12 months.
MBH Corporation says that small and micro-cap share indices have been outperforming mid and large cap indices in 2020. Some 71% of those who were surveyed reckon they will continue to perform better than bigger UK shares during the next six months as well.
2 cheap UK shares on my ISA shopping list
There are many small-cap stocks on my own Stocks and Shares ISA watchlist today. A large number of these in fact look too cheap to miss at current prices, I think. Let me talk you through two of these cheap UK shares that I’m thinking of buying.
#1: Devro
I’d happily invest in sausage casings maker Devro for 2021 and hold it for years to come. Demand for its sausage casings continues to grow and margins keep on rising too. I reckon this particular UK share could experience rocketing earnings growth this decade as sales to emerging markets take off. Devro’s price-to-earnings (P/E) ratio of 9 times for next year provides exceptional value for stock pickers like me. And it carries a mighty 6% dividend yield as well.
#2: Forterra
Brickmaker Forterra is another cut-price corker on my ISA watchlist. Housebuilding in the UK took a whack in 2020 as Covid-19 lockdowns caused workers to down tools. However, construction rates will improve sharply from next year, supercharging demand for Forterra’s products. And building levels will remain strong throughout this new decade as new homes demand rockets (the UK government plans to create 300,000 new homes each year). This particular share trades on a price-to-earnings growth (PEG) rating of 0.1 for 2021. It boasts a handy 2.5% dividend yield as well. As a result, I think it’s worthy of serious attention at current prices.