Last month, the FTSE 100 index hit an all-time high of 8,047.06 points. As I write, it stands at 7,564.68, down over 480 points (-6%) from its peak. However, many UK stocks have fallen much harder than this recently. Here are five cheap shares that I already own, but would gladly buy at today’s newly discounted prices.
Five sliding FTSE 350 shares
The cause of this latest market meltdown originated in California and New York, where two mid-sized US banks failed. Both banks specialised in clients in the US tech sector — and both failed due to poor risk management.
Just as in the old saying, “When New York sneezes, London catches a cold”, this American contagion rapidly spread to hit UK stocks hard. For example, each of these five FTSE 350 stocks has taken a beating in the past few days:
| Company | Market value | Share price | One-year change | Five-year change |
| Aviva | £12.0bn | 428.5p | -22.0% | -37.1% |
| Barclays | £23.4bn | 148.18p | -12.8% | -27.0% |
| Direct Line | £2.1bn | 157.3p | -42.6% | -58.8% |
| Legal & General | £14.4bn | 242.89p | -8.3% | -6.4% |
| Lloyds | £31.7bn | 47.7p | 0.0% | -28.3% |
Worst hit of these five shaken stocks is Direct Line Insurance Group, which had the misfortune to release weak full-year results into Monday’s plunging market. Even worse, its shares have lost more than two-fifths of their value over the last 12 months. Ouch.
Note that all five shares inhabit the financial sector: Aviva, Direct Line and Legal & General Group are all insurers and asset managers, while Barclays and Lloyds Banking Group are leading UK banks. Each has been knocked due to the fear, uncertainty and doubt rocking the US banking sector.
I see these as very cheap shares today
My wife bought all five of these shares for our family portfolio in June or July of last year. At the time, I viewed each as a bargain buy — but several of these stocks are now even more undervalued. Here’s how their value fundamentals stack up today:
| Company | P/E ratio | Earnings yield | Dividend yield | Dividend cover |
| Aviva* | – | – | 7.2% | – |
| Barclays | 5.0 | 20.1% | 4.9% | 4.1 |
| Direct Line* | – | – | – | – |
| Legal & General | 6.7 | 15.0% | 8.0% | 1.9 |
| Lloyds | 6.6 | 15.1% | 5.0% | 3.0 |
As a veteran value/dividend/income investor, I’m drawn to shares trading on lowly price-to-earnings ratios and, therefore, high earnings yields. Barclays, L&G and Lloyds all hit the spot here, with Barclays looking like an outstanding bargain.
Likewise, I also like owning cheap shares that pay me decent cash dividends while I wait for share prices to rise. Four of these five discounted stocks meet this requirement, while Direct Line has suspended its dividend until its earnings rebound later this year.
What’s more, dividend cover from these shares ranges from 1.9 times at L&G to a whopping 4.1 times at Barclays. Then again, these are all trailing (historic) figures — and analysts expect financial firms’ earnings to decline in 2023.
In summary, I would gladly buy all five of these cheap shares today, but I won’t. That’s because I already own them, plus I’m waiting for the new tax year to start on 6 April before investing more cash!
