Are we seeing a once-in-a-lifetime opportunity to buy UK value shares?

Reach, ITV and other London-listed value shares have burst into life despite falls in the US Dow Jones and Nasdaq indexes. Is it time to buy?

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The long-running stealth correction of over-priced and mainly tech-related stocks in the US has started to affect the main US stock indexes. And judging by the noises I’m hearing, US stock traders have been losing money. Or, some have been avoiding stocks because they think a bear market is coming for the whole US stock market.

Of course, such concerns affect US-based long-term investors far less. And to many, the recent falls will be seen as an opportunity to shop for stocks when they’re assigning cheaper valuations to quality businesses.

The UK market is waking up

But I reckon the UK stock market looks like it’s decoupled from the US market — at least for the time being. And I’ve arrived at that conclusion because of the movements in my own portfolio.

For example, my US stock trackers have moved from being among the biggest shorter-term gainers in my account to being the biggest losers. And there’s no surprise there. But what has caught my attention is my UK-focused trackers have been shooting higher. And funds following the FTSE 100 and FTSE 250 indexes, for example, have become my best-performing passive funds in the short term .

But many market commentators have been talking for some time about a rotation from growth-focused momentum stocks to value. That’s especially the case for some of those talking heads based in the US. Most investors consider valuations as one criterion when shopping for stocks to buy and hold for the long term. So it’s natural for some investors to sell out and look for better value elsewhere when popular US stocks showed stretched valuations.

Meanwhile, it’s well-known that the UK market doesn’t have as many high-tech, fast-growing businesses as the US. And by US standards, many of the businesses listed in London have had modest-looking valuations for years.

But although we don’t have as many headline-grabbing mega-tech companies, we do have a lot of quality enterprises. And to me, their shares are worth owning for the long term. However, I’m not alone in that assessment because lots of UK stocks have burst into life. And that’s even as US trend-following investors cry into their Budweisers!

Valuation matters — it really does!

For example, news publisher and distributor Reach moved higher today. And media and entertainment company ITV has been edging up for a few days. Those firms both operate in the media industry. But they also both sport a low-looking valuation. And they aren’t the only UK stocks looking perky — there are many.

My guess is part of the UK’s market strength arises because of an improving outlook for the pandemic. Although I could easily be wrong about that. And I could also be wrong thinking the lower-looking valuations for many UK stocks improve the chances of me making successful long-term investments. Indeed, all kinds of operational challenges could befall the underlying businesses in the years ahead, despite cheaper valuations.

Nevertheless, I’m enthusiastic about the UK stock market right now. And I see the current situation as a potentially once-in-a-lifetime opportunity for me to research and choose between decent UK value shares including Reach, ITV and others. And I’d aim to hold my selections for the long haul. 

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 considered so you should consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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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