2 cheap stocks that will continue surging in 2026, according to experts!

Even with the FTSE 100 reaching a new record high this year, there are still plenty of cheap stocks for investors to capitalise on. And like many investors, institutional analysts have been busy investigating which companies are set for a terrific 2026 to advise their own portfolio managers and clients.

This includes Deutsche Bank, which recently published a report that highlighted two UK businesses as being potentially perfectly positioned to outperform next year. That’s despite both having already surged by around 60% in the last 12 months.

Let’s take a look.

A British banking boom

Deutsche’s two picks are Barclays (LSE:BARC) and NatWest Group (LSE:NWG). Even after already delivering impressive financial results and share price gains, both stocks still trade at price-to-earnings ratios of around 10. Compared to their international peers, that’s cheap.

Even with the Bank of England starting to cut interest rates, both institutions have been busy setting up clever interest rate hedging strategies.

This is a little complicated. But in oversimplified terms, the result is that both Barclays and NatWest will continue to enjoy elevated lending margins even as interest rates continue to fall in 2026. And with both businesses now generating enormous volumes of cash flow, substantial share buyback programmes have since been launched, supporting higher valuations.

Combining all this with upward forecast revisions to the return on tangible equity for both banks, the future appears to be very bright for both banking empires. And with other institutional investors issuing share price forecasts projecting double-digit growth, Deutsche’s analysts aren’t the only ones who see an investment opportunity.

What’s the catch?

No investment is ever without risk. And even with a bullish stance, Deutsche’s team have still identified several key threats to watch closely.

With both banks sensitive to the health of the UK economy, the latest OBR forecasts for a slowdown between 2025 and 2030 don’t bode well. After all, a slow economy directly translates into lower demand for both business loans and mortgages.

This could also have knock-on effects for their existing loan books, with borrowers struggling to keep up with their monthly payments. And in an extreme scenario, that could translate into a rapid spike in delinquencies and credit impairments that ultimately offset the earnings of wider lending margins.

Is now the time to buy?

Even with the macroeconomic risk, the fact that both banks are trading at a significant valuation discount makes them quite tempting.

For reference, the industry average P/E across Europe is closer to 12. And that’s despite many European banks already operating with thinner margins versus Barclays and NatWest, as the European Central Bank cut interest rates far more rapidly.

With that in mind, I think both of these cheap stocks deserve a closer inspection. And they’re not the only investment opportunity within the UK financial space I’ve spotted this week.

The post 2 cheap stocks that will continue surging in 2026, according to experts! appeared first on The Motley Fool UK.

More reading

• Was I wrong about Barclays shares, up 196%?
• Up 200% with a P/E below 12! Can the Barclays share price keep defying gravity?
• £5,000 invested in Barclays shares at the start of 2025 is now worth…
• Will Barclays, Lloyds and NatWest shares take a beating in next week’s Budget?
• At a 5-year high, are Barclays’ shares still good value among UK banks?

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays 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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