Why now could be a great opportunity to buy undervalued UK shares

UK shares look like brilliant value for money and this Fool wants to make the most of the opportunity. Here’s one stock he’d buy.

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The FTSE 100 and FTSE 250 have kicked off 2024 in amazing fashion, rising 8.9% and 6.7% respectively. Even so, a number of UK shares still look severely undervalued, making them good value for money.

I think that’s a great opportunity. And I plan to make the most of it. Today, the Footsie is trading on average of just 11 times earnings. That’s way below its long-term historical average of 15.

Investing in the last few years has been difficult, to say the least. We’ve been through a pandemic, surging inflation and a high interest rate environment, which have stunted economic growth.

However, with the Footsie climbing to record highs this year, I think we could slowly be coming out the other side. Retail figures for the first few months have provided markets with positive signs. Looking so cheap, I reckon UK stocks are well-positioned to keep rising in the years to come.

Not all plain sailing

There are threats and the journey won’t be a smooth ride. In 2024, I see the UK facing a few challenges. The largest of these is interest rates. Talk about rate cuts at the moment is just speculation.

In its latest meeting, the Bank of England kept the base rate at 5.25%. However, governor Andrew Bailey said he was “optimistic that things are moving in the right direction”. With that, if I had to guess, it seems likely the first rate cut could occur in August.

But even if that’s not the case, a few setbacks won’t stop me from buying companies I see real value in. I buy for the long run and with UK shares I think I can make strong gains in the times ahead.

A bargain stock

An example is Barclays (LSE: BARC). Its share price has shot up 37.6% in 2024. But its shares trade on just 8.2 times earnings. That’s a mismatch I think investors should consider capitalising on.

At its current price, the stock’s trading on around five times earnings for 2026. In my opinion, I think that makes the bank look like an absolute steal.

Of course, I’m expecting further volatility this year, which will likely spill into 2025. Falling rates will squeeze Barclays’ margins. In Q1, the group’s net interest margin fell to 3.09% from 3.18%.

But I’d still buy Barclays today if I had the cash. I’m bullish on the firm’s plans for the next few years. It aims to save £2bn by 2026 as it continues its strategic overhaul and streamlines.

I also like the look of cheap Barclays shares for the passive income they offer. The stock’s 3.8% dividend yield’s covered comfortably by earnings. Last year, the business paid out £3bn worth of dividends, a 37% increase from 2022.

Opportunity knocks?

All things considered, I think now’s a great opportunity for investors to consider undervalued UK shares. Barclays is a prime example of this.

Share prices may look low, but I’m not complaining. With that comes bigger dividend yields. With the income I receive, I reinvest it back into buying more shares.

I’ve been doing that with Barclays. So far, my position is up 49.7%. I plan to continue buying more shares 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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