And as market sentiment improves, I believe investors may reevaluate their prospects and send valuations higher. With that in mind, here are two dirt-cheap UK shares I’d buy today. 

UK shares to buy

The first company on my list is the specialist property real estate investment trust (REIT) Capital & Regional (LSE: CAL). This organisation owns shopping centres around the UK. 

The pandemic has decimated this sector, and Capital hasn’t been able to escape the pain. For its 2020 financial year, the company reported a loss of £200m, nearly 2.5 times its current market capitalisation. 

Property writedowns, as well as lower levels of rent collection, have all hurt the group. However, things are starting to look up. Occupancy across the company’s portfolio was nearly 90% at the end of May.

Moreover, 99% of leased units were open and trading across the group’s seven shopping centres towards the end of June. On top of this, the firm has agreed 38 new lettings and renewals this year. 

These are all positive developments. Still, this business isn’t out of the woods yet. There’s been a structural shift over the past 24 months away from brick-and-mortar stores towards online retail. This is likely to have a lasting impact on the group’s property portfolio. Revenues may never recover to pre-pandemic levels. 

Nevertheless, right now, the stock is selling at a price-to-book (P/B) value of around 0.5. I think this looks dirt-cheap. So, while the stock might have its risks, I’d buy the firm as part of my basket of UK shares. 

Stormy waters

Another company I’d buy for my portfolio of dirt-cheap UK shares is John Wood (LSE: WG). This oil and gas services business has been battered by volatile oil prices recently. Its subsidiary, Amec Foster Wheeler Energy Limited, has also had to deal with an investigation from the UK Serious Fraud Office. This investigation recently ended with a £103m deferred prosecution agreement. 

With the investigation out of the way, and the outlook for the oil and gas industry looking up, John Wood can now focus on growth. 

And as the group moves on, investors can snap up the share for a bargain price. The stock is selling at a P/B value of 0.5 and a forward price-to-earnings (P/E) multiple of 10.2. 

I’d buy the stock for my portfolio of UK shares based on these metrics. However, I should reiterate that this firm’s outlook is tied to that of the oil and gas sector. This sector can be highly cyclical, and so can John Wood’s earnings. As such, the company’s growth is far from guaranteed. 

Capital & Regional — which owns retail and leisure properties predominantly in London and the South East — said that 99% of its retailers are trading again following the easing of coronavirus restrictions. It commented that “footfall has been robust and many of our retailers are reporting strong sales and consumer engagement.”

The small-cap is also witnessing improved momentum in leasing and rent collections. It has received 70% of 2021 rents due to date and has agreed outline deals with a number of occupiers for additional collections. Furthermore, Capital & Regional’s collection figure for last year has climbed to 84%.

Meanwhile occupancy stands at 89%, the UK share said, though this excludes three empty units previously occupied by Debenhams. The firm is in discussions with suitors over taking on the space vacated by the failed department store chain.

Capital & Regional added that “with confidence returning and light finally appearing at the end of the tunnel, discussions with our banks have been progressing well.” The business has agreed waivers on all of its properties until October with the exception of The Mall in Luton. Here the company is seeking a covenant waiver beyond July.

Another UK share moving through the gears

News emerging from Marshall Motor Holdings (LSE: MMH) on Friday was also extremely positive. In fact, latest trading details from the UK retail share propelled the share price to fresh five-year highs of 200p. Marshall Motors shares are now 60% more expensive than they were this time last year.

In an unscheduled update, the AIM company lifted its forecasts for the first half and for the full year. It said that “the market has continued to benefit from positive tailwinds, including a recent unprecedented used vehicle value appreciation and favourable demand-to-supply conditions for both new and used vehicles”. Marshall Motors added that its “strong outperformance” of the broader auto market has continued as well.

As a consequence the retailer expects to report “exceptionally strong” profit and cash generation for the six months to June.

Marshall Motors warned that there are high levels of uncertainty for the second half of 2020, however. It said that a shortage of new vehicles due to a global semiconductor drought, a realignment of pre-owned car prices, and the ongoing public health emergency could all dent performance.

The UK share said that these issues create a wide range of possible outcomes for its full-year results. But it added that underlying profit before tax should be “significantly ahead” of market expectations as well as well above current records.

As such, buying penny stocks might not be suitable for all investors.

However, I’m comfortable with the level of risk involved in buying these companies. There are a couple of businesses I would acquire for my portfolio today as economic reopening plays. 

Penny stocks to buy 

Capital & Regional (LSE: CAL) is the first company I would buy as a recovery play. The firm, which owns seven shopping centres around the UK, has muddled through the coronavirus crisis. It collected just 59% of rents due for the first quarter of 2021. I think that illustrates the challenge the group now faces.

The good news is, customers are returning. At the end of April, 95% of its retail units were open. Footfall was approximately 80% of 2019 levels in the two weeks following the reopening of non-essential retailers on 12 April.

These figures indicate that the outlook for Capital & Regional’s tenants is improving, and that should bode well for the company’s rent collection. That’s why I would buy the group for my portfolio of penny stocks. 

The risks of investing here are clear. Another lockdown could be devastating for the company’s tenants, leading to another drop in rent collection and piling pressure on Capital & Regional’s balance sheet. 

Travel resumes

Another company I would buy for my portfolio of penny stocks is Stagecoach Group (LSE: SGC). This business also looks set to benefit from the reopening of the economy.

The public transport provider has seen sales drop to around 50% of 2019 levels, but I’m not worried about what happens to the business in the near term.

Government initiatives, such as the National Bus Strategy for England, and other plans to get more vehicles off the road, suggest demand for public transport will only increase over the next five to 10 years. This could be a splendid tailwind for Stagecoach. This potential has convinced me the company is worth adding to my portfolio of penny stocks. 

Of course, the company has some severe headwinds to overcome first. Another coronavirus wave could set back its recovery. What’s more, if office use never returns to 2019 levels, demand for public transport may remain permanently depressed. 

Reopening trade

The reopening of pubs and restaurants in England has gone better than many expected. That’s why I would buy hospitality business Marston’s (LSE: MARS) for my portfolio of penny stocks. 

The company reopened around 70% of its managed and franchised pubs from 12 April. And the good news is figures show that like-for-like sales at drink-led pubs across the country fell 11% in the last few weeks of April compared to 2019 levels. That’s despite the fact these premises were only allowed to open outdoors. 

I think these figures could set the tone for the rest of the year. That’s why I would buy Marston’s in my recovery portfolio. However, I should note that the business is financially stressed and recently had to secure a waiver from its creditors to continue operating. 

I think this makes the company one of the riskier penny stocks listed in this article. 

Whatever the short-term outlook, I think the future will be healthy for the property market, and I also like a few brick & mortar construction stocks I think will do well.

Here I’m looking at two property-related stocks, which have caught my attention for opposite reasons — one was in Thursday morning’s list of top risers, the other in the top fallers list.

Building materials supplier

I took a look at Grafton Group (LSE: GFTU) a couple of weeks ago, as one in the brick & mortar category. Although its recent earnings growth was expected to slow, I liked the look of it as a long-term defensive stock. Thursday’s third-quarter trading update included a profit warning, and talk of “softer third quarter trends which have continued into October” didn’t help the share price, which dropped 10% during the morning.

While the UK’s construction business is struggling with the uncertainties brought by a potentially traumatic Brexit, the firm now expects to miss its previous expectations by around 4% to 8%. That’s despite constant-currency revenue having grown by 3.6% in the nine months to 30 September, and by 3.1% on a like-for-like basis. But the downturn can be seen in Q3, which saw like-for-like revenues gain just 0.9%.

Assuming a 6% undershoot on forecast earnings, we’re now looking at a forward P/E of 13 after the share price dip. The predicted dividend would still be covered more then three times by reduced earnings, so I think that looks safe, and it would yield 2.4%. That’s not the biggest dividend in the market, but as it’s so well covered and progressive, I find it attractive.

I still rate Grafton as a buy, and the next year or two could be a good spell for topping up.

Small-cap REIT

The big riser is the Capital & Regional (LSE: CAL) real estate investment trust, whose shares jumped 20% on Thursday. The reason is simple. It’s a big investment in the firm by Growthpoint Properties, which has made an agreed partial offer for 30.3% of the existing share capital and will invest a further £77.9m in a new share issue. The result of the deal will see Growthpoint holding approximately 51.2% of the new enlarged share capital.

Prior to the price leap on the news, Capital & Regional shares were trading on a forecast P/E of only around five, which is super low. When that happens to a share that’s genuinely undervalued, a buyout offer is often the way it’s resolved. But it can also result in existing shareholders being forced to sell their shares at a price that, even if it’s at a premium, they might not consider attractive in the long term.

This partial offer can help solve that dilemma. In the words of the company, if offers shareholders “the opportunity to realise an attractive premium to the current share price… while affording them the opportunity to participate in the future value of a recapitalised Capital & Regional.”

I think shareholders should be pleased by the news.

Despite full-year results a few months later being met reasonably positively, my colleague Roland Head told us he was “not completely convinced.“

That was a canny analysis, as the shares continued on a lukewarm trajectory, before falling 15% in response to 2019 first-half results on Monday.

The company spoke of a “stable financial performance during a period of significant transformation,” reporting a small fall in revenue from £31.8m in the same period last year to £31.5m this time. A statutory first-half loss of £32.5m reported a year ago was drastically reduced to just £2.2m, but adjusted EBITDA for continuing operations looked less impressive with a drop from £4.6m to £4.4m.

Net debt looks stable at £25.4m, from £26m, and there’s “significant headroom within its existing facilities.”

Turning around

The trouble is, IDOX is still deeply immersed in a massive restructuring, having taken on new management from board level to senior levels throughout the business. There are disposals and refocusing on key assets going on, together with changes in accounting procedures.

That all adds up to… I haven’t the faintest idea what’s going to happen or what the company might be worth if and when it all gets back on track.

And it means that I’m sticking to my new rule of recovery investing — never buy a recovery stock until after it’s recovered. I think it’s particularly appropriate in the current economic climate, when several stocks have been crashing and then going on to do even worse.

REIT crunch

About a year ago, the Capital & Regional (LSE: CAL) real estate investment trust (REIT) was looking positive, as things were progressing well with its development plans at The Mall in Walthamstow.

I generally like REITs as a relatively low-risk way to invest in the property market. If there’s one investment field in which I think it’s wise to go for a collective investment rather than, say, taking on a residential buy-to-let mortgage and shouldering all the risks yourself, this is surely it.

Unfortunately, as I write these words, there’s a major fire at the the Walthamstow mall, and the Capital & Regional share price has so far taken an 8% hit. The company has not been able to say much so far, beyond assuring us that it will provide further information “once the fire has been extinguished and we have fully assessed the situation.”

New strategy

Shares in the trust, which specialises in shopping centres, had already been in a significant slump over the past two years. In full-year results released in March, chief executive Lawrence Hutchings spoke of “the structural changes currently under way in the retail sector,” stressing the apparent success of “the new strategy we launched just over a year ago.”

As REITs go, I thought Capital & Regional was oversold and looked like a potential buy — and it still might be, as the Walthamstow property is just a part of its portfolio.

And it does help stress the added safety of a REIT — imagine the damage a house fire could do to your property investments if you’d, well, bought a house.

One company offering an improving dividend outlook is FTSE 100 pharma stock AstraZeneca (LSE: AZN). Set to experience rising profitability over the medium term, this could boost its dividend prospects.

Also offering an impressive income outlook is a smaller company which reported positive news on Tuesday.

Impressive outlook

That company in question is real estate investment trust (REIT) Capital & Regional (LSE: CAL). The shopping centre specialist released news that it’s received formal consent for its extension and development plans at The Mall Walthamstow. It will transform the Walthamstow town centre, according to the company’s update, with an 86,000 sq ft extension planned for the existing shopping centre as well as up to 500 new residential homes.

Looking ahead, the plans could help to boost Capital & Regional’s bottom line growth rate over the medium term. The company is expected to report a rise in earnings of 7% in the current year, followed by additional growth of 6% next year. This suggests its strategy is performing well, with the slowdown in the UK economy not seeming to have affected its financial performance.

With a dividend yield of around 8.5%, the stock has significant income appeal. Its price-to-earnings (P/E) ratio of around 12 indicates it offers a margin of safety, which suggests that significant total returns could be on offer over the long run.

Changing business

AstraZeneca’s income potential also appears to be positive. Certainly, a glance at its track record of dividend growth indicates that it lacks appeal. However, the company has faced major challenges in recent years from the loss of patents that has resulted in rising generic competition and a lack of income growth. This has forced it to freeze dividends for a number of years.

In future, though, the company’s aggressive acquisition activity is set to yield positive results for its income profile. AstraZeneca is expected to deliver bottom-line growth of 12% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 1.8, which suggests that it could offer good value for money. Moreover, it means that dividend growth could begin to improve from 2019 onwards. This could help to boost its dividend yield of 3.6%.

With AstraZeneca also having a defensive business profile, it could perform well in a variety of market conditions. For investors who are concerned about the outlook for the UK economy, this attribute may make it more appealing. As such, now could be the right time to buy it ahead of what may prove to be a period of stronger financial performance that leads to rising dividends.

When I last wrote about the company back in August, I dismissed it as too highly leveraged for a company that was facing down falling footfall at high street stores, stagnant consumer confidence and Brexit-related falls in property valuations.

However, the company’s full-year results released this morning offer an opportune moment to reassess my initially negative outlook. Against a tough backdrop for many peers, Capital & Regional performed very well during the latest period.

Like-for-like net rental income bumped up 1.9%, occupancy rates increased substantially from 95.4% to 97.3% year-on-year, and rising profits led to a 7.4% increase in total dividends per share to 3.64p.

And the group has continued to perform well after its December year-end with footfall at its centres up 3.1% in January and February, which was exceptional considering the national index saw footfall contract 2.9% during these months.

This is one area where I was definitely too quick to judge, as going back over the group’s entire portfolio reveals it may hold up better during a recession and against the threat of e-commerce than I expected. Much of this is due to management filling its centres with relatively low-price stores such as McDonald’s and Lidl that cater to daily necessities and should prove fairly resilient during any downturn.

On top of this possible resiliency, the stock also offers a 6.6% dividend yield and a bargain share price that today represents a whopping 18.5% discount to net asset value (NAV). While these facts certainly merit further research on my part, I must say the group’s 46% net debt-to-property value ratio is still far too high for my taste and broader trends negatively affecting the sector lead me to continue avoiding Capital & Regional. 

A larger, more diversified option 

One other REIT that’s on my watch list for offering a high yield, relatively attractive valuation and a management team that’s proving adept at reorienting its portfolio to adapt to changing consumer habits is British Land (LSE: BLND).

The company has a much larger and varied portfolio than Capital & Regional with a collection of very pricey commercial real estate developments existing alongside more high-end shopping centres. This mixed estate leaves the company more vulnerable to any economic downturn, but with its loan to value ratio down to 26.9% as of September, it has the balance sheet to withstand the next recession.

Furthermore, the group’s management team is already planning for this eventuality by disposing of non-core sites at lofty prices and returning the cash to shareholders rather than buying over-priced property. This leads to a 4.7% dividend yield for shareholders alongside a share buyback programme of £300m for the fiscal year to March.

And in the meantime the company is still reaping the rewards of a stable economy as its NAV rose 2.6% in H1 to 939p, thanks to a 1.4% valuation uplift and stable underlying profits despite large disposals. And for contrarian investors, British Land could be a bargain buy at its current share price of 635p, well below its NAV.

However, for investors looking to generate high levels of income and capital growth, the wide margins of safety across the sector could be hugely appealing. Here are two examples of investment trusts which could be worth buying for the long run.

Improving performance

Reporting on Tuesday was shopping centre REIT Capital & Regional (LSE: CAL). The company’s trading performance has been upbeat, with letting activity momentum being strong following an encouraging first half of the year. In the five months to 30 November there were 15 new lettings and 18 lease renewals totalling £1.9m in contracted income. Total occupancy has increased to 96.6% at 30 November, which is up from 95.5% at 30 June.

While the national footfall index has fallen by 2.7% during the 21 weeks since the company’s half-year results, footfall inside its shopping centres has increased by 0.2%. Progress is being made on its cost reduction programme, with annualised savings of £1.8m expected by 2018. This should help to improve profitability and could lead to higher dividends in the medium term.

With a dividend yield of 7.1%, Capital & Regional seems to offer one of the highest income returns in the UK stock market at the present time. As well as this, its shares trade on a price-to-earnings (P/E) ratio of just 13.3. This suggests that they may offer upward rerating potential – especially as the company is in the process of delivering improvements to its business model.

Low valuation

Also offering a mix of income and capital growth potential is fellow REIT British Land (LSE: BLND). The company has a diverse range of assets which could appreciate in value in the long run – especially if Brexit concludes with a favourable deal for the UK.

With a dividend yield of 4.8%, the company offers an income return which is in excess of inflation. Although the price level may increase at a rate faster than 3% in future, there is sufficient headroom to suggest that British Land will continue to offer a real income return over the next few years.

As well as this, the company has a low valuation. It trades on a price-to-book (P/B) ratio of just 0.7. This is 30% below its net asset value, which is exceptionally cheap when the quality of its asset base is factored-in. Indeed, it appears as though the stock market has priced-in a very poor outlook for the business which does not seem to be taking hold. As such, there could be a value investing opportunity for the long run.

A capital idea? 

Well, despite all the talk of weakening consumer confidence and slowing retail sales, mall owning REIT Capital & Regional continues to perform well so far. In the half year to June the company’s adjusted profits rose 6.6% year-on-year (y/y) to £14.5m, thanks to like-for-like rental income rising 0.5%, increased revenue from its centres’ car parks, and cost-cutting designed to cut the bloat from central office functions.

Together these boosted adjusted earnings per share from 1.94p to 2.06p y/y and allowed the interim dividend to increase to 1.73p. This puts the company on track to meet or exceed analysts’ forecasts for a full-year payout of 3.66p that would yield around 6.3% at today’s stock price.

However, I see a few reasons to be cautious about investing in Capital & Regional at this time. The main reason is simply the fact that macroeconomic headwinds including inflation and stagnant wage growth are building and threaten all companies reliant on healthy retail spending. We’re already seeing the effects of this in the company’s H1 results as footfall to its centres fell 0.9% y/y.

To be fair, this was better than the sector average thanks to the majority of its centres catering to more value-focused stores, but lower footfall will eventually lead to falling rents, property values and profits for the company. Furthermore, it is relatively highly leveraged even for a REIT. At the end of June the group’s loan to value ratio was 49%, compared to 22.2% for Land Securities and 29.9% for British Land. With above-average debt levels and sector-wide headwinds mounting I’ll be steering clear of Capital & Regional despite the very nice dividend yield.  

Ready-made income potential 

I’m much more interested in the 6.7% trailing yield offered by Neil Woodford-backed motor accident solutions provider Redde. The company’s business model is to serve as the outsourcer of choice for motor insurers by providing claims processing, appropriate legal services and securing temporary rental cars.

The business has been growing sales at a steady clip in recent years by bringing in new insurance customers, cross-selling and up-selling its variety of services and acquiring related companies. In addition to growing sales, the company has few fixed assets and little need for major capital investments so it’s fairly profitable and can direct the bulk all of its profits to shareholders via dividends.

In the company’s latest results, which cover the six months to December, net cash generated from operations rose to £22.3m and management paid out £14.9m of this in dividends. With net debt of just £13.5m at period end, big dividend payouts and an attractive valuation of 14.3 times forward earnings, I reckon income investors would be well served by taking a closer look at Redde.

Income potential

Reporting on Thursday was real estate investment trust (REIT) Capital & Regional (LSE: CAL). The company announced a trading update for the first half of the year. It showed continued growth in rental income, with further capex-driven gains expected in the second half.

Occupancy remained high at 95.5%, which is slightly ahead of the 95.4% figure as at December 2016. Like-for-like passing rent was £53.9m, which is 17% higher than from December 2016. The company’s accretive capex programme and specialist asset management platform are expected to deliver growth in income, with £1.1m of additional annual rent due to come on-stream in the next month.

Clearly, the outlook for the retail and property sectors are highly uncertain. Rising inflation could put pressure on consumer spending and lead to a slowdown in the rate of growth for the wider economy. However, with Capital & Regional having a sound strategy which has the potential to deliver growth, as well as a south east bias to its asset base, it could perform relatively well over the medium term.

Since the company has a dividend yield of 5.8%, it currently offers an income return which is twice the rate of inflation. This could lead to increased demand from investors for its shares, resulting in a higher valuation over the long run.

Value opportunity

Also offering a high income return in the long run is construction and services company Kier Group (LSE: KIE). Its shares appear to be relatively undervalued when compared to the wider industrials sector. Evidence of this can be seen in the price-to-earnings (P/E) ratio, with the company having a rating of 10.4 versus 16.2 for the wider sector. This suggests there is a wide margin of safety on offer, which could lead to relatively strong performance.

As well as capital growth potential, Kier also has income appeal. It has a forward dividend yield of around 5.5% and shareholder payouts are expected to rise by 4.4% next year. This should keep them ahead of inflation and add to the company’s income appeal. Since dividends are covered 1.6 times by profit, there could be scope for them to rise at a faster pace than earnings growth over the medium term without hurting the financial strength of the business.

As well as income and value appeal. Kier Group also has an upbeat growth outlook. It is expected to report a rise in earnings of 11% next year, which puts its shares on a price-to-earnings growth (PEG) ratio of just 0.9 at the present time.