The FTSE 100 and FTSE 250 have both struggled for positive momentum in 2023. Many top stocks across the wider London Stock Exchange have slumped too as worries over the domestic economy have mounted. This, in my opinion, provides an excellent opportunity for investors seeking cheap shares to buy.
Let’s take a look at some beaten-down bargains, and explain why share prices could soar next year.
Good news!
Inflation has been a significant drag on UK share prices for more than a year. It’s given consumers less money to spend, and driven up borrowing costs as central banks have raised interest rates.
The impact of recent rate hikes could cause turbulence in the global economy in 2024. But markets are forward looking, and belief is growing that monetary policy will be a lot more accommodating from here and that interest rates have peaked. Stocks could well gather momentum in the coming months.
Analysts at Aegon Asset Management say that “the Federal Reserve, the Bank of England and the ECB… all look to have reached the peak of their hiking cycles.” In fact, speculation is rising that Britain’s central bank will cut rates over the summer as consumer price inflation (CPI) falls back towards its 2% target.
Shares that could rebound
Shares across many different sectors would gain from less aggressive central bank policy. Housebuilders like Vistry Group (LSE:VTY) could be some of the biggest beneficiaries as mortgage rates stop rising.
In fact, recent data suggests that the Bank of England’s recent rate freezes are already boosting the market. Halifa says that average home values rose 0.5% in November, the second monthly increase on the spin.
Several of the FTSE 100’s housebuilders have enjoyed strong share price gains in recent weeks. But FTSE 250-quoted Vistry has lagged. This could leave room for belated gains in the coming months, even though labour and material shortages could be a threat in 2024.
The company’s low valuation certainly leaves scope for impressive share price appreciation next year. Today it trades on a rock-bottom price-to-earnings (P/E) ratio of 8.7 times. As a bonus, Vistry shares also sport a bumper 6% dividend yield.
Utilities like National Grid (LSE:NG.) could also rise in price as the BoE stops hiking (or even cuts) interest rates. These companies have huge amounts of debt that cost more to service when rates are higher.
Demand for its shares might also jump if the UK economy continues to struggle. Growing fears over economic conditions often drives interest in classic defensive stocks like this higher. And National Grid — with its market monopoly and essential role in (literally) keeping the lights on — is about as secure as it gets.
Today, the company trades on a P/E ratio of 15.5 times for this financial year (to March 2024). I think this is decent value given National Grid’s excellent defensive qualities. Besides, a chunky 5.5% dividend yield makes it one of the FTSE 100’s biggest yielders.
I think it’s a top buy despite the huge sums it regularly pays to keep its infrastructure up and running.
