I’m looking at undervalued UK shares as the FTSE 100 keeps rising!

With the Footsie on a tear, this Fool is exploring the market for cheap UK shares. He’s found two that look worthy of further investigation.

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Plenty of UK shares look like absolute steals at the moment. But I can’t see that being the case for much longer.

That’s because the FTSE 100 is gaining momentum. This year, it’s up an impressive 3.3%. At the time of writing, the index sits at 7.974.2 points. On 2 April, it spent a brief period above the coveted 8,000-point mark.

That’s a major boost for investors. And, in my opinion, it’s a strong signal of the better times ahead. Inflation is falling, interest rates will hopefully follow suit over the next few months.

Retail sales in both January and February come in hotter than expected. With that, I’m going shopping before it’s too late.

I’ve got a pretty good idea of what I’m looking for. It’s a blend of meaty yields and low valuations. These two stocks look like solid candidates. If I had the spare cash, I’d strongly consider buying both.

BP

One is oil and gas giant BP (LSE: BP). The stock has been pushed up 8.1% higher this year.

Strong demand for oil coupled with lower supply has helped see BP trend upwards. The International Energy Agency recently raised its estimate of 2024 oil demand growth to 1.3m barrels a day, a 110,000 barrel increase from its prior outlook.

Considering that, the BP share price looks cheap to me. It has a price-to-earnings (P/E) ratio of 7.4. That’s below the Footsie average of 11.

It also ticks the income box. The stock has a 4.4% yield. BP has set out to reward shareholders with up to $14bn of share buybacks by 2025, including $3.5bn in the first half of 2024.

The threat to the business is clear. We’re slowly but surely transitioning to a greener future. The use of fossil fuels is continuously scrutinised. Renewable energy is the way forward.

But the path to net zero was never going to be smooth. And with 2050 as the original target, it seems likely that won’t be the case. Fossil fuels will be sticking around for a bit longer than expected. Even so, BP has already made strong progress with its energy transition plans.

NatWest

Another UK stalwart I have my eyes on is NatWest (LSE: NWG). Like BP, it has got off to a hot start. The high street bank’s shares are up 26.1% year to date.

However, there’s one major thing to consider with NatWest. The government owns a 38.6% stake and Jeremy Hunt has made it clear that it intends to sell its remaining shares.

That’s sparked uncertainty among investors. The government will most likely have to sell its shares at a discount to entice the market to buy them. As such, some spectators are cautious.

But even so, that wouldn’t put me off. I’m more concerned about time in the market as opposed to timing the market. If the stock continues with its impressive performance before the sale, there are potential gains that I would have missed out on.

Instead, I like the look of it today. That’s especially true since it has a P/E ratio of 5.7 and a price-to-book ratio of 0.62. Add its 6.2% yield to that and NatWest certainly looks like an opportunity that could prove to be very rewarding.

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 Bp P.l.c. The Motley Fool UK has no position in any of the shares mentioned. 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.

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