UK shares look undervalued and I’m making the most of it

A host of UK shares look cheap as chips and this Fool is going shopping. Here he details one stock he’s keen to top up on.

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The FTSE 100 and FTSE 250 indexes are surging. Yet plenty of UK shares still look like absolute bargains. That’s a rare opportunity I want to make the most of.

This year we’ve seen the UK’s leading index FTSE 100 break the 8,000-point barrier. Although it swiftly fell back, that still offers a huge psychological boost to investors.

Investing has been hard work over the last few years. However, things seem to be on the up.

A solid start to the year

Retail sales figures for January and February come in better than expected, which has lifted the outlook for the economy and reduced fears of a recession.

The Footsie has risen 2.8% year to date while the FTSE 250 has climbed a steady 1.1%. With that in mind, it seems like we’re edging ever closer to putting the gruelling past few years behind us.

Many predict that rate cuts are imminent. On top of that, inflation figures are slowly dropping closer to the government’s 2% target.

Of course, threats do persist. Rate cut talk is purely speculation. Any signs of a delay will dampen investor confidence. We saw the Consumer Price Index figure across the pond unexpectedly rise last month to 3.5%, which is a reminder that inflation still lingers.

Regardless, I’m adopting a longer-term outlook. A potential setback in the months ahead won’t stop me from snapping up stocks that present great value.

An example

Take Barclays (LSE: BARC) as an example. The stalwart bank is up 22.1% over the last year and has jumped 19.2% in 2024 alone. Yet with its shares trading on just 6.9 times earnings, I can’t help but feel that it looks like a steal.

With that, it’s stocks like Barclays that I’m targeting. Especially when I consider that predictions have it trading on just 4.3 times earnings by 2026.

To go with that, there’s also a 4.3% dividend yield covered over three times by trailing earnings. What’s more, the bank has laid out the ambitious aim to give back up to £10bn to shareholders over the next three years.

That’s part of its larger plan to cut down costs and streamline its operations. Its performance has lagged behind many of its peers over the last five years or so. This shake up could provide a much-needed boost for the firm.

I highlighted interest rates earlier. These will have a big impact on Barclays’ performance. While I see rate cuts helping market sentiment, they’ll also mark the end of rising margins for banks. That’s certainly something to consider.

That feeds more widely into what could be a choppy 2024 for UK banks. Events such as the government’s sale of NatWest will add further fuel to the fire.

I’m not complaining

That said, I’m not fussed about short-term lulls. With UK shares as cheap as they are, it means I can snap up more shares with bigger dividend yields. With the income I receive, I’ll simply reinvest it back into buying more shares. If I have the cash, I plan on doing exactly that with Barclays this month.

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. The Motley Fool UK has recommended Barclays 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.

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