I can’t help but notice the number of cheap shares on the FTSE 100 at the moment.
After a tough few years for the stock market, many companies have suffered. The Footsie has stayed relatively resilient during that time. Yet UK shares seem to have gone out of fashion with investors recently.
A rare chance to buy?
But I’m not here to complain. Instead of panicking, I actually think now could be a rare opportunity to load up on bargains. A chance to add high-quality businesses to my portfolio for a slashed price? Yes, please.
The average price-to-earnings (P/E) ratio of the FTSE 100 sits at 10.5. That’s dirt cheap. For comparison, the FTSE 250 average is 12.5. Across the pond, the S&P 500 averages 23.3, while the Nasdaq 100 is over 30.
Of course, those American indices have historically been more expensive than what we have to offer here in the UK, so there’s that to consider. That said, 10.5 still looks cheap compared to the FTSE 100’s historical figures.
Lately, I’ve been taking action and snapping up some shares with attractive valuations. A few honourable mentions include Barclays (6.3), Legal & General (6.9), and BP (4.2).
One on my list
However, it’s one stock that I’ve had in my holdings for a while that I’m keen to top up on. That’s Lloyds (LSE: LLOY).
In the last five years, its share price has been largely uninspiring. Across that time, it’s fallen 23.6%. However, now at 49.5p, I’m sensing a buying opportunity.
It currently trades on a P/E ratio of just 6.5. On top of that, its price-to-book ratio, a common valuation metric used for banks, is just 0.67.
To go alongside its low valuation is a juicy 5.6% dividend yield. Dividends are never guaranteed. However, covered three times by trailing earnings, I have confidence in Lloyds paying out.
What’s more, its yield tops the FTSE 100 average of 3.9%. And with the business hiking its dividend by 15% to 2.76p, along with announcing a £2bn share buyback scheme, investors are hopeful of more to come.
Actions surrounding interest rates have impacted the bank’s performance recently and will continue to do so going forward. Higher rates have boosted its net interest margin, which rose 17 basis points to 3.11% in 2023. However, as rates are cut, which is expected to begin towards the back end of this year, this could see its profits decline.
As the UK’s largest mortgage lender, its share price is also closely tied to the property market, which has wobbled in recent times. However, Halifax’s latest house pricing index showed property prices had risen for the fifth consecutive month. That’s a major positive for the bank.
As inflation falls, I’m hopeful the stock will be provided with further momentum. And at its current price, I think it looks too cheap to ignore.
The businesses I buy today I plan to own for the decades to come. With that, I think Lloyds could be a long-term winner in my portfolio. With any cash I have, I want to increase my position.
