No savings at 40? Here are 5 cheap shares to consider buying in February

The FTSE 100 has had a strong year, up around 20% with dividends on top, but there are still plenty of cheap shares to be had. Bargain hunters shouldn’t feel they’ve missed their moment. So what’s out there right now?

Using the price-to-earnings (P/E) ratio as a starting point, I’ll start by highlighting JD Sports Fashion, which has a P/E of just 6.6, budget carrier easyJet (7.2) and British Airways owner International Consolidated Airlines Group, or IAG (8.7).

I’ve highlighted all three several times recently, so I’m flagging five others that could be worth a look. As always, the decision depends on the individual investor, including their attitude to risk, time horizon and which shares they already hold.

FTSE 100 bargain buys?

I should also warn that a cheap share isn’t necessarily good value. Often there’s a very good reason why it looks inexpensive.

If I had no savings at 40, I’d be keen to buy a spread of bargain shares to help power my wealth through both dividends and growth over the 25 years or so to retirement. That’s enough time to give beaten-up stocks a chance to fight back to form.

One possible recovery play is Hikma Pharmaceuticals (LSE: HIK). Its shares have plunged by a third in the past year and its market value has dropped below £3.5bn, so it could even slip into the FTSE 250.

Hikma specialises in generic medicines, cheaper versions of drugs whose patents have expired, and could benefit as weight-loss drugs come off patent, particularly in the Middle East and China where demand is strong.

Hikma’s growth forecasts are jaw-dropping

The shares trade on a lowly P/E of just 9.35, while the trailing dividend yield has edged above 4%. However, the business is far from firing on all cylinders. On 6 November, Hikma trimmed full-year revenue and profit guidance. One month after that warning, its CEO stepped down after just two years in the role.

Here’s the eye-catching bit. The one-year consensus broker share price target is 2,216p. If correct, that would see the shares rocket 45% from today’s 1,529p. Some of those broker forecasts may pre-date recent setbacks, though, so investors should treat them with caution.

Hikma neatly illustrates the risks and rewards of buying cheap shares. There’s a big opportunity here, but no guarantee Hikma will seize it. Worth considering, but with a long-term view. Don’t ever buy a stock expecting to make a killing in a year.

Here are four more bargains to consider. Long-term income seekers who don’t mind holding tobacco stocks might look at Imperial Brands, trading on a P/E of 9.7 and yielding 5.25%. BT Group and oil giant Shell both look reasonably priced too, with identical P/Es of 10.2.

Personally, I’ve gone big on distribution specialist Bunzl, which trades on a P/E of 10.5. I’d wanted to buy Bunzl for yonks, and when the price plunged 40% over the past year, I grabbed my chance. Bunzl may take a few years to return to form, but still looks like a solid operation to me.

There are plenty more recovery opportunities across the FTSE 100. But investors do need to do some homework to work out which fallen giants are best placed to bounce back, and which may stay cheap for all the wrong reasons.

The post No savings at 40? Here are 5 cheap shares to consider buying in February appeared first on The Motley Fool UK.

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Harvey Jones has positions in Bunzl Plc, International Consolidated Airlines Group, and JD Sports Fashion. The Motley Fool UK has recommended Bunzl Plc, Hikma Pharmaceuticals Plc, and Imperial Brands Plc. 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.

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