Research shows that buying stocks at low valuations is the best way to achieve large investment returns in the long run. As such, today I’m going to highlight five cheap UK shares I’d buy in a Stocks and Shares ISA to take advantage of depressed investor sentiment towards the businesses.
The falling oil price has hurt John Wood Group, the hydrocarbon engineering consultancy.
However, demand for oil & gas products hasn’t evaporated. Oil demand is expected to fall around 10% this year before rebounding in 2021. This suggests now could be an excellent time to buy shares in the engineering business.
Engineering oil and gas projects is a specialist subject, and John Wood is one of the most respected businesses in the world in this field. When demand growth returns, the company should benefit. That could lead to improved investor sentiment towards the operation and other cheap UK shares in the sector.
Transport operator FirstGroup could also be an excellent addition to a Stocks and Shares ISA. Coronavirus lockdowns reduced demand for public transport earlier this year, but demand is now starting to recover.
It may be sometime before demand returns to 2019 levels but, in the long term, the company should benefit from the government’s climate change ambitions. Part of the plan to reduce emissions is to get more people travelling on public transport rather than private vehicles. FirstGroup may benefit from this trend in the long run.
Pub group Marston’s has seen revenue plunge in 2020. Unfortunately, the organisation is unlikely to return to 2019 levels of profitability anytime soon as the coronavirus crisis is still causing havoc across the hospitality industry. However, like many cheap UK shares, Marston’s now offers a significant margin of safety. Therefore, even a slight improvement in trading could lead to a big jump in the company’s share price.
National and regional newspaper publisher Reach looks to offer the same kind of risk/reward potential, in my opinion.
This year, the business has seen a significant drop-off in advertising revenues as publishers have cut back to preserve cash. The company may continue to face uncertainty in the near term, but it’s currently trading at a forward price-to-earnings (P/E) multiple of just 2. That could make it one of the cheapest stocks on the London market.
Finally, I think investors should consider low-cost airline easyJet as part of a basket of cheap UK shares.
Despite coronavirus headwinds, the company remains one of the largest and most efficient low-cost airline groups in Europe. This could work in its favour when the recovery gets underway. Smaller competitors may not be able to compete with easyJet’s size and scale.
Therefore, now could be an excellent time to buy shares of this industry leader while they trade at low levels. I reckon near-term turbulence should be more than offset by long-term gains.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Marstons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.