Why I think UK shares make a tempting investment opportunity

UK shares have endured a rough few years, but I think there’s reason to see investment opportunities improving, even in the FTSE 100.

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UK shares have been a mixed bag for investors since the pandemic struck a year ago. Some stocks that benefited from the disruption have soared, while many more have suffered. The FTSE 100 is now lower than it was in the late 1990s, and the lack of good news in the media is not helping it recover as quickly as many of us hoped.

UK shares gathering momentum

Nevertheless, I think there are a few valid reasons to believe this is a good time to be investing in the UK. That’s because when a turnaround finally comes, I think it will be swift. And those investors that got in early will be the ones best positioned to profit from rising UK shares.

That also falls in line with the sage advice of billionaire investor Warren Buffett: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

This means he jumps on investing opportunities in a down market and steps away when things are getting overbought. For this reason, I think some UK shares in the FTSE 100 might tempt him. This index is made up of 100 of the UK’s largest and most established companies. Many of them have an international presence and access to capital that could help them make a rapid comeback once macroeconomic circumstances allow.

Reason for hope

While it’s depressing to think the FTSE 100 is now lower than it was two decades ago, it’s important to remember that period was the height of the dotcom bubble, just before it popped. Things improved and the highest closing value the index has ever seen was above 7,877 points in May 2018.

In 2020, the FTSE 100 plunged over 2,400 points between February 21 and March 23, as news of the pandemic took hold. Since then it’s rebounded considerably and now sits above 6,500. 

With the UK rapidly rolling out vaccines, there’s reason to hope we’re on the road to recovery. Brexit is also behind us, allowing for a fresh start all round. And some fund managers agree as they begin to build on their exposure to UK shares.

I like Hargreaves Lansdown

With a rebound in mind, I’m considering FTSE 100 shares that meet the following criteria:

  • A share price that has the potential to rise. A decent balance sheet, a competitive edge and increasing consumer demand should all allow a company’s share price to rise once the economic outlook improves.
  • UK shares with a strong-looking future. Some companies have the established strength and resilience to keep ploughing ahead, and particularly so once the vaccine rollout concludes and life resumes.

A UK share I like is Hargreaves Lansdown, and I think it meets these criteria. It has done exceptionally well throughout the pandemic, with 84,000 new active clients since June and strong customer retention. The company currently has a price-to-earnings ratio of 22 and a 2.4% dividend yield. Earnings per share are 13p. I like that it offers a dividend and I don’t think it looks too expensive given the business model.

However, it’s important to keep in mind that it’s a competitive business with cheaper offerings available to new investors. Hargreaves Lansdown’s established platform draws in shareholders. But that could change if competitors offer an equally reliable but cheaper product.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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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