Is time running out to buy cheap FTSE shares?

With inflation dropping significantly, Zaven Boyrazian believes now’s a good time to start buying FTSE shares while they’re still cheap.

| More on:
Person holding magnifying glass over important document, reading the small print

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.

While political uncertainty’s bearing down on FTSE shares, the British stock market’s still trending upwards. With inflation cooling, there are growing expectations of interest rate cuts around the corner. And apart from alleviating pressure on household wallets, the lower cost of capital bodes well for stock valuations as well.

As such, 2024 could be a terrific year for investors as the market recovery could potentially enter full swing. And if that’s the case, does that mean time’s running out to capitalise on bargains?

Capitalising on a recovery

History has proven countless times that snapping up quality shares at cheap prices can be quite lucrative. And finding such bargains after a period of heightened volatility is far easier since widespread panic-selling creates buying opportunities en masse.

We’ve already seen many FTSE shares make stellar comebacks over the last six months. Yet there are still plenty trading well below their estimated intrinsic value. And should interest rate cuts spark a new rally, that may change fairly quickly.

This certainly suggests time is running out to capitalise on the recovery. But while this might be partially true, rushing into cheap-looking investments can easily turn into a costly mistake.

Even during a correction, stocks get beaten down for a reason. And in many cases, there’s justifiable cause for concern. It’s up to investors to carefully analyse the underlying business and its situation to verify they’re not walking into a value trap. And, unfortunately, this takes time.

The good news is while the opportunity to capitalise on a stock market recovery’s rare, there are always bargains to be found. Events like short-term disruptions to operations, or missed earnings targets can spark significant stock price volatility, even during a raging bull market. Therefore, investors should never fall prey to the fear of missing out.

Top stocks to consider now?

Finding the best stocks to buy is never easy. After all, everyone has different risk tolerances and objectives that make different businesses suitable or unsuitable, depending on the individual. However, as a young investor, my portfolio’s focus is still firmly on growth. And with that in mind, Kainos Group (LSE:KNOS) looks promising to me.

The group specialises in digitalisation, helping companies automate their processes and improving efficiency while reducing costs. And it’s proven to be a highly generative endeavour that’s led to a return on invested capital (ROIC) of more than 30% for over five years! For reference, the average among most FTSE shares is around 10%.

Seeing this level of shareholder value creation priced at a forward earnings multiple of 20 seems relatively cheap. This is especially true considering that it’s significantly lower than its five-year average. However, Kainos shares aren’t exactly strangers to volatility.

With a stellar track record, investor expectations surrounding this business have been steadily rising over the years. To date, management seems to be delivering on these milestones. And while I’m optimistic the firm will continue to do so moving forward, an unforeseen disruption could spark quite a bit of volatility in the short term.

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.

Zaven Boyrazian has positions in Kainos Group Plc. The Motley Fool UK has recommended Kainos 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

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Could the FTSE 100 be set to soar in 2024?

The FTSE 100 keeps threatening to go off on a growth spree. And weak sentiment keeps holding it back. But…

Read more »

Investing Articles

Is this FTSE 100 stalwart the perfect buy for my Stocks and Shares ISA?

As Shell considers leaving London for a New York listing. Stephen Wright wonders whether there’s an undervalued opportunity for his…

Read more »

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

3 things I’d do now to start buying shares

Christopher Ruane explains three steps he'd take to start buying shares for the very first time, if he'd never invested…

Read more »

Investing Articles

Investing £300 a month in FTSE shares could bag me £1,046 monthly passive income

Sumayya Mansoor explains how she’s looking to create an additional income stream through dividend-paying FTSE stocks to build wealth.

Read more »

Investing Articles

£10K to invest? Here’s how I’d turn that into £4,404 annual passive income

This Fool explains how using a £10K lump sum can turn into a passive income stream worth thousands for her…

Read more »

Investing Articles

1 magnificent FTSE 100 stock investors should consider buying

This Fool explains why this FTSE 100 stock is one for investors to seriously consider with its amazing brand power…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 under-the-radar FTSE 100 stocks under £2

Jon Smith identifies two FTSE 100 stocks that he believes are getting a lack of attention from some investors but…

Read more »

Investing Articles

£8,000 in savings? I’d use it as a start to aim for £30k a year in passive income

Here's how regular investing in the UK stock market, over the long term, could help us build up some nice…

Read more »