UK shares: a once-in-a-decade opportunity!

Our writer explains why he believes now’s a great time to buy UK shares, despite the FTSE 100 being more expensive and pushing back up towards 8,000.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Smart young brown businesswoman working from home on a laptop

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

UK shares are well represented within my portfolio. It’s works well for me as I focus on earning dividends and reinvesting them over time — it’s a compound returns strategy.

The FTSE 100 might be pushing upwards and is once again nearing 8,000. But I don’t think that tells the full story. Many stocks in the UK are trading at incredibly low valuations. And this offers us a unique opportunity to buy stocks at knockdown prices.

Let’s explore why.

Depressed sectors

Certain areas of the market are trading at impressive discounts. So which are they? Well, I’m focusing on financial stocks, including banks and housebuilders.

Financial stocks in the UK haven’t been that popular with investors for some time. But the Silicon Valley Bank (SVB) fiasco in March sent stocks crashing. Barclays, HSBC, and Standard Chartered were among those to fall 20%, and more.

These stocks have gained since, after investors realised that the unique circumstances that downed SVB were unlikely to impact major banks in Europe.

But it wasn’t just banks that were impacted. Insurance, pensions, wealth management and other companies were heavily affected. Phoenix Group was among those stocks that fell more than 10%.

The key feature linking all these stocks is that they’re very different from the failed SVB. Well-managed financial institutions hedge interest rates and have strong liquidity coverage — SVB didn’t.

Meanwhile, housebuilder stocks were also impacted by the SVB crash — investors suspected a credit crunch might follow. But housebuilders slumped towards the end of last year as conditions deteriorated.

Companies like Persimmon are now trading near their 10-year lows. But conditions are starting to improve. Actually, I’ve just received a mortgage quote and the interest rate is down on my January quote. And this has been reflected in private sales data.

It really could be a once-in-a-decade chance to buy housebuilders at these prices. I’d also suggest that panic-engendered corrections of financial stocks don’t come all that often. It’s a great time to buy, in my opinion.

My picks

The above sectors are largely where I’m focusing my investments. After all, as a value investor, it’s certainly easier to find undervalued stocks in depressed parts of the market.

One of my top picks is Barclays. I’ve been topping up over the past two months as the share price has gradually ticked upwards after the SVB shock. The company trades at just five times earnings and I think the broad outlook for the company is positive.

At the moment, interest rates are very high, and I’m a little concerned about the size of the group’s impairment charges. But I’m buying for the medium term during which Bank of England interest rates are forecast to fall to 2-3% — this is ideal for banks.

At slightly lower rates, we can expect net interest income to remain strong, but impairment charges will likely fall.

I’ve also been topping up of FTSE 100 stalwart Legal & General as well housebuilder Vistry. The latter has reported improving private sales data, but also has some insulation from the current challenging conditions in its ‘partnerships business’ — affordable homes.

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. James Fox has positions in Barclays Plc, HSBC Holdings, Standard Chartered Plc, and Vistry Group Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, 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.

More on Investing Articles

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 overlooked cheap shares I’m tipping to eventually soar

These two cheap shares may not be obvious bargains, but our writer explains the investment case behind buying them for…

Read more »

Investing Articles

1 no-brainer pick I’d love to buy for my Stocks & Shares ISA!

A Stocks & Shares ISA is a great investment vehicle for our writer. Here she explains why, and one stock…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Just released: our 3 best dividend-focused stocks to buy before May [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Will the Rolls-Royce share price keep rising in 2024?

With the Rolls-Royce share price going on a surge, this Fool wants to look forward to where it could potentially…

Read more »

Investing Articles

£10k in an ISA? Here’s how I’d target a regular £30k+ second income stream

Reliable dividends can help provide a lot more financial freedom. Here's how I'd aim for a substantial second income inside…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Lloyds share price hanging on to 50p ahead of Wednesday’s Q1 earnings report. Where to now?

Down in April and with low earnings expected this week, Mark David Hartley investigates where the Lloyds share price might…

Read more »

artificial intelligence investing algorithms
Investing Articles

Everyone’s talking about AI! Here’s 1 FTSE stock to consider buying for exposure

A hot topic right now is artificial intelligence (AI). This Fool explains how this FTSE stock could offer investors an…

Read more »

British Pennies on a Pound Note
Investing Articles

1 penny stock I’d buy today while it is 99p

Ben McPoland highlights Windward (AIM:WNWD), a fast-growing penny stock that could benefit from the artificial intelligence revolution.

Read more »