The FTSE 100 index is close to the highs of the year, currently trading around 7,135. However, this is still some way off the levels seen back in 2018, when the index traded comfortably above 7,700 points in the spring. With that in mind, I think there are some cheap UK shares within the index that are worth considering to buy now in July.
Looking for cheap UK shares
There’s always a thought in my mind as to whether to buy cheap UK shares now or wait and see if they become even cheaper. I don’t have a crystal ball, so can’t say with certainty how the markets will trade in the future. But what I do know is that (in my opinion) the share is cheap now. So I can either buy a known cheap share, or wait for an unknown outcome in the future.
From a risk management point of view, it makes sense to buy a cheap UK share now. I do understand that what I consider to be a cheap share might not be the same for someone else, and that’s what provides the potential to outperform or underperform other people.
For me, certain characteristics need to be evident to make something cheap. A good starting point is a low share price based on the historical price chart over several years. This is just the starting point though, as a low share price could mean the company is in trouble.
I like to couple up the low share price with robust or improving earnings. A great way to compare the two elements is via the price-to-earnings ratio. I can then look at the industry average and weigh up whether it really is a cheap UK share worth buying.
Investing £1,000 for an economic boom
If I was looking to invest £1,000, I think now is a good time to hopefully piggyback off some strong economic performance. Various companies have been weighed down by the impact of the pandemic over the past year. This has thrown up several cheap UK shares, given the fact that some investors sold shares out of fear, not for fundamentally sound reasons.
Such stocks should see their share prices rally over the next year or so if the UK continues to show good growth. For example, the unemployment rate has fallen from 5.1% at the end of last year to 4.7% currently. More people back at work will help to boost output.
Although retail sales dipped in May, the April figure showed high growth of 9.2%, beating the already strong growth of 5% in March. I think this is also helps to paint a positive outlook for the UK. This could mean that certain UK stocks that look cheap might not stay that way for long.
The risk is that the good economic data might be a short-lived boost, and that after the initial frenzy of post lockdown activity, demand might fall. This could see us head into the winter with negative GDP growth.
Overall, I’d look to pick three or four cheap UK shares and split my £1,000 between them. I’d aim to invest sooner rather than later, to take advantage of a potential economic boom.
