I am always looking for cheap UK shares to buy for my portfolio. And I think now more than ever it is crucial to consider valuation when analysing securities.
Indeed, with interest rates set to continue rising and the cost of living also growing, the outlook for the economy is becoming more uncertain by the day.
By focusing on valuation, I believe I can avoid the market’s most expensive equities, which are likely to suffer the most if economic growth starts to slow. Highly-valued growth stocks may quickly fall out of favour if their development does not live up to expectations.
This is just what is happening over the pond. Shares in companies like Peloton and Zoom have plunged 80% and 50% respectively over the past 12 months. Their growth has not lived up to the market’s lofty expectations.
With that in mind, here are a handful of cheap UK shares that I would buy for my portfolio right now. I believe these firms have the qualities required to continue to grow over the next decade and beyond.
Cheap UK shares
When I am looking for shares to buy for the long term, I try to focus on growth themes that can act as tailwinds for underlying businesses.
The UK car market is only set to expand over the next decade. With this tailwind in place, I think the outlook for Vertu Motors and Pendragon is highly encouraging. What’s more, right now, these companies are also benefiting from surging second-hand car values here in the UK.
The stocks are both selling at a forward price-to-earnings (P/E) multiple of less than 10. That looks cheap compared to their growth potential.
But some challenges that these and the other companies outlined in this article could face include rising costs and a fall in demand due to the cost of living crisis.
Construction sector
The outlook for the UK construction industry also appears incredibly bright. The government is ramping up infrastructure spending, and this growth, coupled with expanding demand for new properties, could provide a windfall for builders and infrastructure providers over the next decade. In my view, Morgan Sindall and Balfour Beatty are some of the best UK shares to play this theme.
Both of these companies have the economies of scale required to capitalise on the growth in the sector and keep costs low. Despite these qualities, shares in both businesses appear undervalued, considering their potential over the next decade. The shares are selling at a forward P/Es of less than 12 at the time of writing.
Talking of building, I think homebuilders like Bellway could also be an excellent investment for the next decade. With the demand for new homes only set to rise over the next few years, the company looks to be good value, with the shares selling at a P/E of just 7.8.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Peloton Interactive, Pendragon, Vertu Motors, and Zoom Video Communications. 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.
