Investors seem to have lost confidence in UK shares. I’ve spent a lot of time perusing the FTSE 100 and FTSE 250. The main thing I’ve noticed is how so many quality companies are trading on dirt cheap valuations.
In the years to come, I think I might look back on now and regret not snapping up some bargains. As such, I’m going shopping…
Brighter times ahead
The UK stock market has been through a tough spell in recent years. Brexit, a pandemic, racing inflation, and interest rates hitting levels not seen for 40 years are just a few of the ingredients colliding to create a cocktail of uncertainty surrounding the market. Understandably, many stocks have felt the brunt of this.
But should this be a concern? I don’t think so.
I want to be proactive. Many Footsie shares look oversold, but I’m not sure this will remain the case for much longer.
No doubt we’ll experience more volatility in the months to come. But as interest rates eventually drop and inflation continues to fall, I’m expecting investor sentiment to be provided with a boost.
High quality, low price
Take NatWest (LSE: NWG) as an example. Right now, I can pick up shares in the bank trading on just 4.9 times earnings. Surely that’s too cheap to ignore?
Maybe. But there’s one thing I need to know about NatWest shares. That’s the fact the government still owns a 35% share of the bank and has plans to offload its stake in the near future.
There’s still uncertainty around how it plans to do so and at what price it’ll sell at, so there’s that to consider. Many believe it’ll be at a discounted price. That could be an opportunity to swoop in and pick up some shares.
Aside from that, another reason I’m bullish on NatWest is because of the passive income opportunity. At today’s price, I can lock in a 6.9% yield, comfortably above the FTSE 100 average (3.9%).
It paid out a total dividend of 17p for 2023. Alongside its results, it also announced a £300m share buyback scheme. I like stocks that offer a stable income. So for me, that’s a major plus.
The business has been through a lot recently. Last year it was in the limelight following its de-banking scandal. After that fallout, former CEO Alison Rose resigned last July.
She’s now been replaced by Paul Thwaite. So hopefully, the firm can put its internal issues behind it. That said, I still think 2024 has the potential to be choppy for UK banks.
Long-term potential
However, I’m happy to endure some volatility if I see long-term potential. In 2023, the firm made its largest profit since 2007. Granted, it was boosted by a high net interest margin. But I’m hopeful this will provide it with some momentum to kick on.
UK shares look cheap and NatWest is a prime example. Of course, I’m wary of falling into value traps. But if I see good businesses trading for even better prices, I fully intend to make the most of the opportunity.
In the weeks ahead, with any investable cash I have, I’ll be opening a position in NatWest.
