5 cheap shares I’d buy for the stock market recovery

Last week’s bounce in the market was encouraging. Can 2023 give us the mother of all rallies? I will save time. No one knows.

However, that doesn’t stop me from hunting for cheap stocks that can turn a profit. Here are five that I would like to buy today. In fact, I already got one of them in February.

Unfavorable sector

House builder persimmon has felt the full force of rising mortgage rates and the cost-of-living crisis. Its share price is down 39% in 12 months.

But this company away in better shape than before. There is a pile of cash that can be used to buy quality land when prices are low. And I don’t see the dividend being withdrawn… maybe just reduced to a more sensible level.

A price-to-earnings (P/E) ratio of 11 could prove to be a great value if/when inflation falls and interest rates slow. Regardless, the UK property shortage remains a long-term headwind. I now continue.

Sports/fashion retail giant JD Sports is the main choice for 2023, back at the end of December. Since then, it has returned 40%. That compares very well to FTSE 100 index (4.2%).

I think more benefits lie ahead. Shares are only trading at just 14 times forecast earnings. It seems reasonable, because CEO Regis Schultz plans to double revenue, profits and, consequently, market share in 2028.

Of course, execution is everything. And retail is a tough old game. So it is important to reduce the risk by spreading my money.

Bet against

I have cheated a bit with the third option. It sounds like, Polar Capital Technology Trust is a full-stock fund from the technology space. Like retail and property, this sector is hated in 2022, due to rising interest rates.

But I think this hatred is temporary. The idea is mega-caps Apple and Microsoft that somehow ex-growth is a step too far. This is especially the case with recent investments in OpenAI.

Investors should also consider track record. Polar Capital’s confidence is still up more than 88% over five years.

Buy before the boom

Both of my choices are still related to finance.

Unsurprisingly, the past year has not been good for fund managers. Liontrust Asset Management is a great example of a company that is suffering.

However, I think now might be a good time to buy. Once established, the recovery will generate a wave of money from retail investors looking to get back into the game, through actively managed funds.

In the meantime, I’ll be paid to wait. Liontrust shares yielded a forecast 5.7%.

The last cheap shares I bought were IG group. As market leaders, online trading platform providers are well-positioned to benefit from traders’ rush to buy into the next bull market. Again, there is a solid dividend stream (yielding 5.8%) which is guaranteed by the expected profits.

Throw in a strong balance sheet and plenty of growth potential (especially in the US) and a P/E of less than 9 looks like a bargain, even though IG is often subject to regulatory interference.

I would buy this stock (and the other three I don’t own) now if I had the funds available.