I think the FTSE 100 is full to the brim with bargains!

This Fool thinks that plenty of companies on the FTSE 100 look undervalued. With that, he’s going shopping. Here’s one he’s eyeing.

| More on:
Young Asian man drinking coffee at home and looking at his phone

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.

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.

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.

Charlie Keough has positions in Barclays Plc, Bp P.l.c., Legal & General Group Plc, and Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group 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

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »