2 cheap shares I’d buy as the FTSE 100 hovers around 8,000 points

Investing in cheap stocks is a great way to secure big returns in the future because of their significant growth potential. However, as FTSE 100 flirts with a new high above the 8,000 point barrier, stock taking care is arguably more important than ever.

I have been looking at the UK’s blue-chip benchmark for value investment opportunities. There are two undervalued dividend stocks that I would consider buying today if I had the cash to spread.

The Footsie Company I am interested in is persimmon (LSE:PSN) and Schroders (LSE:SDR).

persimmon

Investing in one of Britain’s biggest housebuilders may not be an obvious choice in a year when house prices are expected to fall. However, the 41% decline in Persimmon’s share price over the past 12 months has pushed the company’s dividend to record highs.

At 16.66% today, the stock currently has the highest dividend yield in the FTSE 100 index by a considerable margin.

Chronic undersupply in the UK housing market means that housebuilders have an important role to play in the future.

There is a British penchant for home ownership. I think this should continue to act as a tailwind for housing demand and prices over the long term. In turn, that should provide support for Persimmon’s share price in the coming years.

However, near-cloud risks are apparent. A standoff between buyers and sellers can create a situation in which housing construction activity stagnates.

In addition, there are challenges posed by rising interest rates and rising building costs. Finally, the dividend could be threatened if the company’s cash flow increases this year.

Overall, I see Persimmon stock as a high-risk play right now. Offsetting that risk is a declining valuation, reflected in a price-to-earnings ratio of 6.15. This metric shows that the current stock price presents a good investment opportunity.

If I have some spare cash, I pound the average cost by investing a small amount in company shares at regular intervals to smooth out any near-term volatility.

Schroders

The multinational asset management company has also underperformed over the past year. Schroders’ share price is down 23% over the past 12 months. On the other hand, a strong dividend yield of 4.21% adds to the stock’s passive income appeal.

After a big fall, I think Schroders shares look cheap now. But it is important to check the weeds first. The company’s assets under management (AUM) fell in the third quarter to 30 September 2022, from £773.4bn to £752.4bn. At first glance, this doesn’t seem like good news.

However, much of the reduction can be explained by a £20bn fall in AUM for the group’s pension solutions business. The main reason behind this is the collapse of the liability driven investment market resulting from last year’s ‘mini’ budget.

Fortunately, financial instability is in the rearview mirror. Going forward, I think that asset managers focusing on higher-margin asset classes, sustainability, and technology investments should help the stock continue its recent positive trajectory.

Of course, the stock market crash will dampen my hopes for a stock price recovery. However, some companies are immune to this situation. With some cash I’d invest in Schroders shares today.