The FTSE 100 – the most followed UK stock market index – has had a good run over the last few months. Since late March, the index has risen nearly 30%.
However, don’t despair if you missed the rise. There are still plenty of cheap stocks in the index that could produce strong returns for investors in the years ahead. Here’s a look at two cheap UK stocks I like the look of right now.
This FTSE 100 stock looks oversold
Packaging company DS Smith (LSE: SMDS), which specialises in manufacturing sustainable cardboard boxes for online shopping, has seen its share price fall from 384p to around 270p this year. As a result, it now trades on a forward-looking P/E ratio of less than 10.
With that kind of share price performance and valuation, you might think the FTSE 100 company is in trouble, due to Covid-19. However, in reality, that’s not the case. This is a company that appears to be ticking along quite nicely.
Indeed, just recently, the company advised that for the financial year ended 30 April, adjusted operating profit increased 4%, while basic earnings per share increased 7%. It said that in March and April, it saw “relatively little impact” from Covid-19.
Meanwhile, looking ahead, management sounded quite confident about the future. “In the medium-term, the growth drivers of e-commerce and sustainability are as strong as ever. The Covid-19 crisis is also expected to accelerate a number of the structural drivers for corrugated packaging and our scale and innovation-led customer offering positions us well and gives us confidence for the future,” said CEO Miles Roberts.
All things considered, I see a lot of potential here. Given the rapid growth of e-commerce, I see this leading packaging company as well-positioned for the future, despite the near-term Covid-19 uncertainty.
At its current price and valuation, I think DS Smith is a great buy.
A cheap UK stock
Another UK stock I believe is cheap right now is defence specialist BAE Systems (LSE: BA). Its share price has fallen from 565p to 470p this year. At current prices, it trades on a forward-looking P/E ratio of about 11.
One reason I like BAE Systems is that it’s a key supplier of defence equipment to major governments, including the UK and US. As revenues are governments-backed, they’re unlikely to default on payments.
Another reason I like BAE is that the company has branched out into a number of high-growth industries recently, including cybersecurity, data protection, fraud prevention, and regulatory compliance. This means it has multiple growth drivers.
BAE issued a relatively encouraging update in late June. While the company said its first-half profit would be impacted by Covid-19, it also said its second-half performance would be much stronger as it returns to “full operational tempo.” The company added that demand for its capabilities remains high, with order intake in line with its original expectations for the year.
All in all, there’s a lot to like about BAE Systems, in my view. I think this UK stock offers a lot of value right now.