The stock market crash has caused weak investor sentiment towards a range of UK shares. As such, many of them trade at cheap prices that may not reflect their long-term profit potential.
Buying them today may not produce impressive returns over a matter of months. However, the prospects for an improving economic outlook could lead them to higher share prices in the coming years.
With that in mind, here are two British shares that appear to be undervalued at the present time. Buying them could improve your ISA’s prospects.
Recovery potential after the stock market crash
The Sainsbury’s (LSE: SBRY) share price has declined in the stock market crash along with other FTSE 100 retailers. It currently trades 6% lower than at the start of the year.
However, its financial performance has been relatively robust. Its first-quarter trading statement showed a rise in retail sales of 8.5%, although higher costs mean that it is due to post a 7% decline in net profit in the current year.
Looking ahead, Sainsbury’s is forecast to return to profit growth next year. Its earnings are due to rise by 6%, which puts it on a price-to-earnings (P/E) ratio of 10.5. This suggests that it offers good value for money, and may have scope to deliver a recovery as investor sentiment improves after the stock market crash.
The business has invested heavily in increasing its online presence across its grocery operations and within Argos. This could allow it to capitalise on consumer trends that are likely to shift towards digital sales. As such, now could be the right time to buy a slice of the company while investor sentiment remains weak.
Growth at a reasonable price
RSA (LSE: RSA) also appears to offer good value for money relative to other FTSE 100 shares after the stock market crash. The insurance business trades on a P/E ratio of 10.2. This suggests that it offers a wide margin of safety, since it is forecast to post a rise in net profit of 11% next year.
The company’s recent half-year results showed that it has delivered a resilient performance despite an uncertain operating environment. The impact of coronavirus on its operating profit was broadly neutral. It has produced an improved underwriting performance, while its various regions are performing relatively well.
Clearly, the threat of a second stock market crash could hold back the RSA share price in the short run. A weak economic outlook may also delay the return of its dividend payments. However, its wide margin of safety and solid operational performance suggest that it offers long-term return potential. As such, now could be the right time to buy it alongside a diverse range of shares within a tax-efficient account such as an ISA.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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