Finding the best cheap UK shares to buy now could be a very worthwhile move in the long run. They may offer a potent mix of financial strength and wide economic moats, as well as scope to deliver high capital growth in the long run because of their low current price levels.
Since the FTSE 100 and FTSE 250 have failed to fully recover from the 2020 stock market crash, there appears to be a wide range of choice for investors who are looking for cheap stocks. Here are some of the most promising stocks that could prove to be undervalued at the present time.
Housebuilders: the best cheap UK shares to buy now?
FTSE 100 housebuilders such as Taylor Wimpey, Persimmon and Barratt could be among the best cheap UK shares to buy now, I think. They trade at relatively low price levels as a result of the uncertain outlook for the wider sector. However, they have large net cash positions that should see them through the current economic crisis.
Furthermore, the housing market is likely to receive substantial support in the coming years. For example, interest rates are set to remain at a low level to help make housing more affordable. And, while the Help to Buy scheme is due to change and the stamp duty holiday is expected to come to an end in March, further government support for the sector seems likely.
FTSE 100 bank shares are dirt cheap
Even though bank stocks such as HSBC, Natwest and Lloyds have made gains of late, they could still be among the best cheap UK shares to buy now. Certainly, they face extremely difficult trading conditions in the short run due to a low interest rate environment and a weak economic outlook. But a potential return to dividend payouts and an improving economic outlook could catalyse investor sentiment towards the sector.
Moreover, the banking sector is in a stronger position than it was in the last major global recession. As such, investing in a diverse range of banks could prove to be a profitable long-term move, albeit with high volatility along the way as the current economic crisis unfolds.
A long-term viewpoint of UK stocks
Clearly, the best cheap UK shares to buy now may not produce impressive returns in the short run. By definition, their low prices indicate that they face an uncertain near-term outlook that may negatively impact on investor sentiment in the coming months.
However, past stock market declines have always been followed by long-term recoveries that yield new record highs. Cheap stocks have often been the best performers in such rallies. Therefore, buying a diverse range of such companies today could be a sound means of benefiting from a likely stock market rally that leads to rising share prices across today’s undervalued sectors.