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Cheap shares abound in the UK market but not all are the best buys. Lately, I've been practicing law at two companies I used to hold and I'm wondering if their low price tags and high earnings make them worth adding to my Stocks and Shares ISA.
Great harvest
I lost faith in the Broadcaster ITV (LSE: ITV) a few years ago. So far, it was a smart decision to sell. I FTSE 250 the member's share price has held between 60p and 80p for almost two and a half years.
However, I miss the income. Can I go back?
The dividend yield is an annual yield of 6.4%. That's pretty impressive considering the shares are actually up 25% since January.
If the City's analysts got their numbers right, this revenue would likely be paid for by the full year's profits. This is despite net income dipping 3% in the first quarter of 2024 due to the slow stickiness of its Studios arm.
Bargaining for value?
This volatility is not enough to scare me. But the thing that bothers me is that ITV has become so controversial about releasing those shares. It now returns much less per share than it did before the pandemic hit. On top of this, popular sporting events such as Euro 24 do not take place every year and expensive productions may still fail to capture the interest of viewers.
The price-to-earnings – or P/E – ratio is just a ninth no doubt taking some of this into account. And as the UK economy appears to be returning to health and as inflation worries ease, the recent positive momentum could continue.
That said, I'm not in a rush to buy until I read the next trade update, which is due on November 7th.
Until then, it remains on my watch list.
Profit alert
Another company I came back to look at is a manufacturer of laser guided equipment Somero Enterprises (LSE: SOM). Despite being a tiddler compared to ITV, the CHECK-The listed firm has also produced a great income stream for my portfolio for the years I have owned it.
Unfortunately, the tough time to trade, thanks in part to rising interest rates, has caused those gains to yo-yo around the area since I sold. That's a shame. They can never be guaranteed, of course. But I really look for consistency in anything I buy for the money.
It's fair to say that 2024 hasn't been pretty so far. In July, the owners were attacked by chops with a profit warning. At the time, management believed that trading would improve in H2. But with sales in its biggest market – North America – affected by project delays, Somero may still struggle to meet full-year forecasts.
'Quality' shares of shares
Analysts have 24 cents in total dividends penciled in for this fiscal year. Although I have already missed the first part of this, such a return would translate into a large maturity of 6.3%.
Elsewhere, I see that small cap still boasts many of the attributes I look for: great margins, high return on capital and a strong balance sheet.
Like ITV, I will keep an eye on this stock going forward, especially since the valuation is very similar. But I think there are better opportunities to make money coming in right now.
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