Stock market rally: 5 cheap UK shares I’d buy in an ISA today and hold forever

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Stock market rally: 5 cheap UK shares I’d buy in an ISA today and hold forever

Buying and holding cheap UK shares ahead of a likely stock market rally has historically been a sound means of generating high returns.

After all, this strategy involves buying companies for less than they may be worth while investor sentiment is weak. Over a period of months, or years, those companies could record relatively high returns as a result of their low starting prices and improving investor sentiment.

While the FTSE 100 and FTSE 250 have made gains in recent weeks, they contain many cheap stocks at the moment. Therefore, now may be the right time to buy and hold these five companies in an ISA.

Cheap UK shares in the financial services industry

Many UK shares in the financial services industry could be major beneficiaries of a likely stock market rally in the coming years. For example, Standard Life Aberdeen’s financial performance is closely linked to the prospects for global asset prices. When they are rising, investor sentiment strengthens and the firm may report improving assets under management figures. Furthermore, its 15% share price fall in 2020 may mean it is undervalued.

Barclays is another FTSE 100 financial services business that may produce impressive returns in the long run. Its shares have declined by over 20% this year. Despite this, it is due to post a 78% rise in earnings next year. This puts the stock on a forward price-to-earnings (P/E) ratio of only around 10. This suggests that it could offer good value for money relative to other UK shares. And it may deliver impressive returns in a stock market rally.

Dividend opportunities for a stock market rally

UK shares with attractive dividends may also benefit from a long-term stock market recovery. For example, Vodafone’s 6%+ dividend yield could make it attractive. That is especially so when there are limited options to make a passive income outside the stock market. Similarly, BHP has a dividend yield of around 6%. Its solid asset base and diverse range of operations may mean it can survive an uncertain period. And it may then be able to deliver impressive total returns in the coming years.

Meanwhile, Shell could offer an impressive long-term performance. Its plan to invest in the green recovery may mean it can deliver attractive returns over the coming years. Its 4% dividend yield and attractive profit forecasts in an improving global economic environment could mean that investor sentiment strengthens significantly after a challenging year for the oil industry.

Clearly, all UK shares could face an uncertain period if a stock market rally takes time to develop from current levels. But, with the FTSE 100 having always posted fresh record highs after its previous downturns, now may be the right time to invest money in a range of stocks to benefit from a likely stock market recovery in the coming years.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

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Peter Stephens owns shares of Barclays, BHP Group, Royal Dutch Shell B, Standard Life Aberdeen, and Vodafone. The Motley Fool UK has recommended Barclays. 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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