Stock market

2 Persuading people to consider buying cheap shares for long-term profit and growth

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Cheap shares come in all shapes and sizes. I’m more interested in why the stock is considered cheap, and could it be a smart buy for long-term recovery?

Two stocks that caught my eye recently. Barclays (LSE: BARC) and Braden Group (LSE: BREE). Here’s why I think they’re a bargain, and why investors should consider them now for long-term growth and profits!

Barclays

If you ask me, banking stocks haven’t really recovered from the 2008 global financial crisis. Since then, they have had to navigate multiple issues. Some of these include Brexit, the pandemic and now the current economic downturn. So I’m not surprised to see one of the so-called big four, Barclays, trading cheap.

Shares have performed well over the past 12 months. They are up 18% over the period, from 154p this time last year, compared to current levels of 182p.

Despite the gains in recent months, Barclays’ current value at a price-to-earnings ratio of just 7 is hard to ignore. This is especially so when you consider the firm’s key position in the banking ecosystem in the UK. Additionally, its diversified operations – including retail banking, its Barclays credit card, and investment arm – offer it a layer of protection in my view.

Finally, a dividend yield of 4.4% is an attractive prospect for passive income. However, I understand that profits are not guaranteed.

From a bearish perspective, continued volatility can spell bad news for earnings, profits, and investor sentiment. Businesses can see this due to credit lapses, and bad debts. Additionally, the business has a track record of problems, such as the huge PPI scandal that cost millions a few years ago. Hopefully this can prevent problems like this going forward, but I’ll be watching closely.

Braden Group

As with banking stocks, recent economic problems have hurt the construction industry, so Braden’s shares look cheap to me.

The business is an asset-rich building materials supplier and contractor with principal operations in the UK and Ireland.

Breedon shares are up 3% over the 12-month period to current levels of 375p from 363p at this time last year.

Inflationary pressures – as well as economic shocks – have stalled much construction, including home construction, and infrastructure projects. Persistent problems can begin to reduce efficiency and profitability, and hurt future profitability.

What I love about the business is that it has assets that actually create the content it sells, rather than what it buys and sells. This gives it better pricing power and margins, which can drive efficiency and growth.

Additionally, the business recently acquired a US business to try and grow in this lucrative market. If it pays off, business performance and returns can reach new heights.

Looking at the fundamentals, the shares trade at a price-to-earnings ratio of 11, and offer a dividend yield of 3.6%, which is attractive.

To me, Braden is a great example of a business that can thrive after the volatility is over.


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