2 cheap stocks to buy and hold
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Just because a stock has a low price doesn’t mean it’s cheap. For me, cheapness is about value. The stock price should look like a good value when weighed against the company’s business prospects. Using this approach, I looked for cheap stocks to buy. Here are two that I would consider buying today for my wallet.
The sales company Picture me (LSE: PHTM) not only operates the photo machines that give it its name. It also operates everything from self-service laundromats to juice makers. This business has proven to be lucrative in the past. By placing its machines in places that usually receive a lot of customers, the company is able to take advantage of a sudden desire for refreshment or a regular need to do laundry.
Operating in a variety of fields and in many countries, this has given him expertise in managing a network spanning thousands of sites. Individual machines charging pennies or pounds at a time may not seem like big slot machines. But when added up on a large scale, they can be very profitable. Last year, for example, the company reported an after-tax profit of almost £22 million.
That means its price-to-earnings (P/E) ratio is around 12. But earnings remain 50% or more below their pre-pandemic levels. Ongoing restrictions in some markets may continue to weigh on earnings this year. However, the company is trading at a forward-looking single-digit P/E ratio if it can return to its former profit level. It also has a dividend yield of 4%. So I see Photo-Me as cheap stocks to buy for my portfolio.
Over the past year, the share price of Imperial Marks (LSE: IMB) increased by 12%.
Despite this, I continue to view these stocks as cheap. The P/E ratio is less than nine. I think one thing helps to explain this is the fear that profits may decline in the future. The company has sold some attractive assets such as its premium cigar business and demand in its core cigarette business is expected to continue to decline in coming years.
But asset sales have helped reduce debt, and the company’s focus on improving market share in key cigarette markets appears to be paying off. The company increased its overall market share in its top five markets during the first half. Although sales volumes were down 0.7% from the same period a year earlier, price changes resulted in a slight increase in revenue.
I see long-term risks in Imperial’s business model. But with a 9% return, I think they are reflected in the stock price and would consider buying Imperial for my portfolio.
Cheap stocks to buy
I own both of these stocks. I would consider adding more to my portfolio. I think Photo-Me is better for my risk profile than Imperial Brands. But I think Imperial’s high dividend yield helps me offset the risks I see in stocks.