Super-investor Warren Buffett has always emphasised buying shares at a reasonable price. And he’s been successful by focusing on the quality of the underlying enterprise but without over-paying for the shares.
Paying too much for a business can lead to investments under-performing, even if the company does well with its operations. And Buffett’s early mentor, Benjamin Graham, described picking up share bargains as ‘building in a margin of safety’.
Why I think these are UK shares to buy
However, simply buying cheap valuations is no guarantee of investment success. Cheap shares can become even cheaper, taking my invested capital down with them. Nevertheless, the present mood of the market seems to favour shares displaying decent value characteristics rather than over-priced growth shares. And I’m hunting for shares with that theme in mind.
For example, I like the look of investment management services company Charles Stanley. City analysts expect earnings to bounce back in the trading year to March 2022. But the business has a history of wild swings in earnings, suggesting it’s susceptible to cyclical influences.
With the share price near 290p, the forward-looking earnings multiple for the next trading year is around 11. And the anticipated dividend yield is about 3.6%. The valuation looks undemanding, but it always has done. And the stock has been trending lower for around seven years. If that move continues, I could end up losing money. Nevertheless, I’m tempted to embrace the risks and target a long-term holding period with a £1k investment.
I’m also keen on maritime and logistics services provider Ocean Wilsons. City analysts expect a chunky bounce-back in earnings this year and the stock looks cheap against those forecasts. With the share price near 830p, the forward-looking earnings multiple is just above 14 and the anticipated dividend yield is around 6%.
There’s potential, but a positive outcome isn’t certain
However, the firm has a patchy record of earnings and there’s a lot of cyclicality in the business that could derail my investment in the stock. On top of that, the shares have been trending down for a decade with many big swings along the way. This one isn’t for the faint-hearted. But I’m still tempted to pick up £1k’s worth of the shares to hold for the next decade.
I’d aim to invest £1k in specialist-fit fashion retailer N Brown. The shares look cheap, but if I’d invested seven years ago I’d be well underwater by now. The company has a terrible record with earnings but has the opportunity to turn itself around now. The share price is near 69p, which throws up a forward-looking earnings multiple just below eight for the current trading year.
I’d be prepared to take the risk that N Brown may continue to underperform with its operations. And I’d aim to hold for at least a decade to allow recovery and growth in the underlying business to play out. However, that outcome is by no means certain.