2 cheap shares I can’t believe I don’t own

As an old-school value investor, my investment strategy is simple. I aim to identify cheap stocks, buy them, and then hold them for the long term.

Also, I was guided by my hero, investment genius Warren Buffett, who once said, “Price is what you pay. Value is what you get.”

In short, I bought a solid, established business at a reasonable price. Therefore, I focus on large caps FTSE 100 sharing. Here are two undervalued stocks that I can’t believe I don’t already own.

Cheap shares #1: Anglo American

One Footsie show caught my eye recently Anglo American (LSE: AAL). Mega-miner Anglo is the world’s largest platinum producer. It also mines copper, diamonds, iron ore, nickel, and metallurgical coal to make steel.

Today, Anglo shares are priced at 2,649.5p, valuing the group at £35.6bn. This is 38.3% higher than the 52-week high on April 19, 2022.

As a result, the stock is down 34.7% in one year, but up 64.5% over the past five years. To me, this indicates some short-term weakness – and potential recovery.

At current prices, the stock is trading at a modest price-to-earnings ratio of 8.9, for a yield of 11.3%. This is higher than the wider FTSE 100’s earnings yield of 8.3%.

Furthermore, Anglo Shares offer a dividend yield of 6.2%, compared to the FTSE 100’s annual cash yield of around 4%. This cash payout is guaranteed over 1.8 times by earnings, which is a decent cushion against the dividend cut.

As a veteran investor, I know mining earnings can be volatile, driven by commodity boom-bust cycles. Often, this translates into turbulent stock prices. Additionally, Anglo has a record of cutting dividends in difficult times (most recently in 2015, 2016, and 2020).

Despite this, I plan to buy some of these cheap stocks for my family portfolio when I have spare cash.

Undervalued stock #2: NatWest

My second low is Big Four bank stocks NatWest Group (LSE: NWG), formerly known as Royal Bank of Scotland (RBS). The group is the UK’s leading mortgage lender, as well as a leading lender to small and medium-sized businesses.

In October 2008, RBS nearly collapsed and was saved by a massive government bailout. Today, NatWest is a less risky beast, but its shares suffered during the US/Swiss banking crisis last month.

At a 52-week high, NatWest’s share price peaked at 313.1p on February 2. It now trades at 264.1p – down almost six (-15.6%) in two months. NatWest shares have gained 14% over the past year, but are down 6% over five years.

Again, what drew me to this stock was its low rating and market-beating dividend. At a price-to-earnings ratio of 7.3, NatWest shares yield a 13.7% yield.

Meanwhile, the dividend payment of 5.2% per annum is covered 2.6 times by earnings. While this is a wide margin of safety, I have no doubt that NatWest’s 2023 earnings will be lower than in 2022.

Finally, with the UK economy weakening and household budgets under pressure, bank debt and loan losses could jump in 2023. Even so, I’d love to buy this cheap stock when I get the chance!