Today, I’m searching for the best cheap stocks to buy for my portfolio. Here are two I think could help me make terrific returns. Both look set to deliver rapid earnings growth for at least the next couple of years.
A top counter-cyclical share to buy today
I believe Begbies Traynor Group (LSE: BEG) shares look too cheap for me to miss. The insolvency and administration practitioner trades on a forward price-to-earnings growth (PEG) ratio of 0.5 for this financial year (to April). This is comfortably inside the benchmark of 1 and below that suggests a stock is undervalued.
Earnings at Begbies Traynor have been growing by solid double digits each year for around half a decade now. This is thanks in large part to the profits-boosting acquisitions it’s been making in recent times.
With the UK economy slowing, and rocketing inflation putting businesses under intensifying pressure, I expect profits to keep growing strongly too as demand for its services should inevitably pick up. This is a view shared by City analysts who reckon full-year profits will grow 23% and 10% this year and next respectively.
Insolvency cases in Britain are rising sharply as Covid-19 furlough schemes have been withdrawn. The numbers look set to grow strongly in the spring and beyond too, as inflationary pressures worsen and the removal of final government financial support programmes this month.
However, Begbies Traynor’s profits could significantly suffer when economic conditions improve. But at current prices, I think it remains a top cheap UK share to buy.
A dirt-cheap stock for the digital revolution
Kape Technologies (LSE: KAPE) might not have the financial clout or the brand recognition of US cyber security giants like Microsoft or McAfee, to name just a couple of its rivals. And it is facing the threat of other major tech players like Google entering the fray too. But at current prices, I still think this smaller player could be worth the risk. Today, Kape trades on a forward PEG ratio of 0.2.
The rapidly-growing cyber security industry moved up another gear during the pandemic as both homeworking and e-commerce took off. It’s a sector that looks set to keep growing rapidly as well, giving Kape the chance to deliver more solid earnings growth, despite that competitive threat. City brokers think the firm’s earnings will surge 57% in 2022 and by an extra 11% in 2023.
It’s perhaps no surprise that forecasters are so bullish given the constant stream of news concerning cyber attacks. In recent days, Toyota was forced to shutter 14 of its factories following an attack on its systems. The British government too announced steps to make internet providers bulk up their security to protect users.
Investment in internet security is set to soar across the globe as cyber warfare from independent hackers and rogue states increases. And I think Kape could be a great cheap share to buy in this environment.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Microsoft. 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.