2 dirt-cheap UK shares that look ready for liftoff

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Looking at all the times FTSE100 graph, the incredible bullfight we are in right now is evident. The Footsie is up over 40% since the crash in March 2020. And I’m seeing minor dips down the road as opportunities to cash in on UK stocks cheaply.

I hear investors lament missed market opportunities. Right now some high quality UK stocks are down over 30%! Here are two companies that I am closely watching for investment in the coming months.

Reduce your bills

B&M European Value Retail (LSE:BME) is a UK stock that has been on my watch list for a few years. With inflation forecast to hit 22% next year, I expect discount retailers to see increased revenue. And B&M has quickly become a big player in this sector.

While many grocers felt the brunt of rising raw material costs, B&M managed to maintain stable revenue and sales in FY 2022. The group posted a pre-tax profit of £525m. , exactly the same as in FY21. Sales growth over two years (compared to fiscal 2020) was 13%, showing that the company was able to retain a large portion of its customers gained during the pandemic.

By focusing on in-demand products and avoiding overstocking in stores, the company has been able to keep costs low and turn a profit. In fact, overall gross margins increased to 37.4% from 36.9% in FY21.

Supply chain issues are a huge concern for supermarkets right now and B&M is no different. Disruptions in Asia could affect operations in the coming months. Also, rising energy costs mean higher transportation costs that the company will have to deal with.

However, I am impressed by B&M’s frugal business model and its commitment to its dividend policy. Its profitability stands at 4.3% and the board is confident it will maintain current levels.

Its shares are down 39.7% in 2022 and are trading at a price-to-earnings ratio of 8.9 times. Given the market share and business model, I think B&M is the best budget option for my portfolio at the moment.

Cheap UK Defense Fee

The world is recovering from the war in Ukraine and defense budgets around the world are skyrocketing. I think that investing in the sector could be a good growth option in the future. One UK action that has caught my attention is Babcock International Group (LSE: BAB).

The firm specializes in electrical systems for combat vehicles on land, in the air and on water. Along with engineering, the company also provides training, support and data management services for the military.

In FY22, group revenue increased 3% to £4.1bn with underlying operating profit of £238m. The company recently signed defense contracts with Australia, France, Indonesia and the UK. This has significantly increased their order book.

There is always an underlying threat of trade restrictions when it comes to defense actions. A sales ban could have a big impact on Babcock’s earnings. The company is also dealing with rising metal prices, which is crucial for an engineering company’s margins.

But I remain bullish on Babcock stock for my growth portfolio. It’s down almost 4% in the last month after a 50% rise since January 2021. I think this presents an attractive entry point at 328p. Currently, this UK stock looks like a bargain to me given the strong interest in defence, the quality of the company and the momentum.

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