UK shares look way too cheap to ignore right now

UK shares look cheap as chips and this Fool plans to go shopping. Here he explores one stock in which he’s keen to increase his position.

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We’ve seen the FTSE 100 and FTSE 250 have an awesome start to the year. Nonetheless, plenty of UK shares still look like incredibly good value for money.

I want to make the most of that. With the Footsie trading on an average of just 11 times earnings, that’s way below its long-term historical average of 15.

Investing has been hard work over the last few years. But I reckon now could be a rare opportunity. This year we’ve seen the Footsie climb to record highs. With retail figures in the first few months also showing positive signs we’re heading in the right direction, I reckon UK stocks are well-positioned to keep rising over the long run.

Bumps along the way

Of course, the journey won’t be easy. There are still a few challenges the UK will face in the months ahead.

Interest rate speculation is exactly that: it’s just talk. While some members of the Bank of England Monetary Policy Committee have hinted at the prospects of rate cuts this year, others have reminded investors that inflation still remains a threat.

But even so, potential setbacks in the months ahead won’t stop me from snapping up stocks that look like great value. I’m playing the long game and I’m optimistic that by shopping in the UK I can win.

One to watch

An example of what I’m talking about is Barclays (LSE: BARC). Its share price has shot up 31% in the last year. But its shares trade on just 7.9 times earnings. That’s a mismatch I hope to capitalise on.

At its current share price, the stock is trading on just 4.3 times earnings for 2026. I can’t help but feel that right now the Blue Eagle Bank looks like an absolute steal.

As I highlighted above, 2024 will be choppy for UK banks. Falling rates not only bring uncertainty but they’ll also bring an end to the boost banks have been receiving from higher margins. We already saw this from Barclays in Q1. Barclays also took a £900m hit related to structural costs in Q4 of 2023. These are risks to bear in mind.

But I’d still buy the stock today if I had the cash. I like where the business is heading. Recently it announced plans for a strategic overhaul that will help it streamline as it vies to become more competitive. As part of this, the bank plans to make up to £2bn in savings by 2026.

I also like cheap Barclays shares because they offer passive income. The stock yields 3.9% covered comfortably by earnings. Last year it paid out £3bn via dividends, a 37% jump from 2022.

Looking ahead, the business is set to return £10bn to shareholders over the next three years via dividends and share buybacks.

A smart time to buy

I think now seems like a smart time for investors to consider undervalued UK companies. Share prices may look low, but with that comes bigger dividend yields. With the income I receive, I’ll reinvest it back into buying more shares. That’s what I plan to do with Barclays with any investable cash.

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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