2 dirt-cheap UK stocks that look ready to take off

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Watching all the time. FTSE 100 Graph, the incredible bull run we are in right now is clear. Footsy is up over 40% since the March 2020 crash. And I’m seeing opportunities to cash in on UK equities at a discount to minor risks along the way.

I hear investors lamenting missed market opportunities. Right now, some top quality UK stocks are down over 30%! Here are two companies I’m watching closely for investment in the coming months.

Reduce your bills

B&M European Value Retailer (LSE:BME) is one UK share that has been on the watch list for a few years. With inflation reaching 22% next year, I expect discount retail stores to see an increase in revenue. And B&M has quickly become a major player in this sector.

While many grocers are feeling the brunt of rising raw material costs, B&M has managed to maintain stable earnings and sales in fiscal 2022. The group posted a pre-tax profit of £525m, the same as in FY21. Two-year sales growth (compared to 2020) was 13 percent, indicating that the business was able to retain the large number of customers it gained during the pandemic.

By focusing on in-demand products and eliminating excess store inventory, the company was able to keep costs low and make a profit. In the 21st fiscal year, gross profit increased from 36.9 percent to 37.4 percent.

Supply chain issues are a major concern for supermarkets these days and B&M is no exception. Disturbances in Asia may affect operations in the coming months. Also, the increase in energy costs means higher transportation costs that the company has to deal with.

However, I was impressed by B&M’s lean business model and commitment to its dividend policy. The yield is 4.3% and the board is confident of maintaining the current level.

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

Cheap UK defense share

The world is torn apart by the war in Ukraine and defense budgets around the world are being shot. I think investing in the sector can be a good growth option. One UK share caught my eye. Babcock International Group (LSE:BAB)

The company specializes in electrical systems for ground, air and water combat vehicles. Along with engineering, the company provides training, assistance and data management services to the military.

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

There is always a major threat of trade restrictions when it comes to defensive stocks. A sales ban could seriously hurt Babcock’s earnings. The company is dealing with rising metal prices, which is critical to the engineering firm’s margins.

But I’m still bullish on Babcock shares for my growth portfolio. It fell to 4% last month after a 50% rise since January 2021. This shows an attractive entry point at 328p. At the moment, this UK share looks like a bargain to me given the company’s high demand for defence, quality and speed.

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