UK stocks are sliding, but I’m not worried!

UK stocks dived last week, as fears of a global banking crisis rocked stock markets. These seven FTSE 100 shares were hit hardest, but I’d buy three today.

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Last week was brutal for the stock market: London’s FTSE 100 lost 5.3% in five days. However, the US S&P 500 index rose 2.1%, offsetting losses for global investors. And some UK stocks fared much worse than others.

The FTSE 100’s biggest fallers

As a value investor, I like buying shares after they tumble. When Mr Market gets spooked, he sometimes offers me stocks at bargain-basement prices.

I don’t buy just any knocked-down shares, however. What I look for are quality businesses with share prices hit by selling pressure. I call these deeply discounted stocks ‘fallen angels’ — and there are plenty of them currently.

These were the FTSE 100’s biggest losers last week:

CompanyOne-week changeOne-year changeFive-year change
Legal & General-13.9%-18.0%-13.5%
Shell-14.0%12.7%1.0%
Barclays-14.6%-18.7%-32.6%
Ashtead Group-15.2%-11.3%142.5%
M&G-18.1%-17.8%*
Standard Chartered-18.2%26.6%-17.6%
Prudential-21.2%-5.9%-39.9%
*M&G wasn’t a member of the FTSE 100 five years ago.

My table is dominated by financial firms. As this latest market slide was triggered by the failure of two mid-sized US banks, this is hardly surprising.

Still, it’s hard to accept that rescuing two highly tech-exposed US banks should trigger such steep falls in these UK stocks. Indeed, I regard the above asset managers — Legal & General Group, M&G, and Prudential — as among the most ‘boring’ blue-chip shares.

Then again, with a global banking crisis threatening to break out, shares in the UK’s Big Four banks took heavy hits last week. Hence the near-15% dive in Barclays shares and the 18%+ plunge in Standard Chartered stock.

I’d buy these cheap UK stocks

Having been investing since 1986, I experienced the carnage of the October 1987, 2000-03, 2007-09 and spring 2020 stock-market crashes. But these collapses taught me the value of buying when there’s blood in the streets — even if it’s my own.

For the record, my wife bought shares for our family portfolio in Barclays and L&G midway through 2022. After their recent declines, I’d gladly buy more of these two UK stocks if I had any cash to spare. Also, I view M&G as very undervalued and aim to purchase these cheap shares next tax year.

Here’s how these three FTSE 100 shares’ fundamentals stack up after Friday’s close (in A-Z order):

CompanyShare priceMarket valuePrice/earnings ratioEarnings yieldDividend yieldDividend cover
Barclays139.56p£22.1bn4.721.4%5.2%4.1
L&G226.6p£13.5bn6.216.1%8.6%1.9
M&G177.8p£4.2bn****11.0%**
**M&G did not make a profit last year, so these figures are excluded.

To me, these three stocks look unfairly cheap. But now for the bad news. These figures are historic — or trailing — numbers. Hence, if this banking crisis worsens, all three financial firms could see their earnings tumble.

Furthermore, these businesses could suffer if the UK economy weakens or slides into full-blown recession. But the latest government forecast is for our economy to shrink by a mere 0.2% in 2023.

Summing up, these three dividend yields look pretty attractive to me as an investor seeking long-term income. What’s more, at two of the companies, cash payouts are covered several times by trailing earnings. So when I have the cash to buy more cheap UK stocks, I won’t hesitate to do so!

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.

Cliff D’Arcy has an economic interest in Barclays and Legal & General Group shares. The Motley Fool UK has recommended Barclays Plc, Prudential Plc, and Standard Chartered Plc. 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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