Over the past few years, investors seem to have turned their backs on UK shares. In all fairness, I can understand why.
From Brexit to the pandemic and, more recently, double-figure inflation, the UK stock market has been under a lot of pressure. Many share prices haven’t delivered great returns and UK shares have been overlooked as such.
But this seems to be changing. FTSE 100 and FTSE 250 shares have got off to a flying start in 2024. It seems UK stocks could be coming back into fashion.
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But even so, they still look dirt cheap. I think now could be a chance to capitalise on undervalued prices before we see them soar in the years to come.
Coming in hot
After a rather monotone 2023, Footsie shares have upped the pace in 2024. Year to date, the FTSE 100 has risen 6.1%. At the same stage last year, it was down 0.9%. The FTSE 250 has climbed an impressive 6.1%. Similarly, at this point last year, it had fallen by over 3.6%.
But even with a solid start, plenty of shares still look dirt cheap. Today, Footsie shares trade on an average price-to-earnings (P/E) ratio of 11. That’s way below their long-term historical average of around 15.
Not straightforward
That’s not to say it’ll be a straightforward trajectory. The economy’s still flagging, and risks do remain in the near term.
Inflation figures for April came in higher than expected. While some were speculating about interest rate cuts as early as next month, that now seems incredibly unlikely.
But I’m not going to let bouts of short-term volatility distract me from my long-term goals. Potential setbacks over the upcoming months won’t stop me from buying up shares that present great value.
One example
An example of that is Barclays (LSE: BARC). The Blue Eagle Bank is up 40.7% this year alone. Yet its shares have a P/E ratio of just 8.5. I can’t help but feel that it looks like a steal and it’s a mismatch I plan to capitalise on.
With that in mind, it’s stocks like Barclays that I plan to continue buying in the months to come. What’s even better, at its current price, the stock’s trading on a P/E of around five for 2026.
Alongside its cheap valuation, the stock has a healthy 3.7% dividend yield, covered over three times by trailing earnings. The bank has set out the ambitious aim of giving back up to £10bn to shareholders over the next three years via dividends and share buybacks. Last year, the amount it paid out via dividends increased by nearly 40% year on year.
As I outlined above, I’m expecting further volatility. With interest rates likely to be cut in the near-to-medium term, Barclays will see its margins shrink in the years to come. We’ve already seen this. For Q1, its net interest margin fell to 3.09% from 3.18%.
But with the business recently announcing a strategic overhaul that will see it streamline, boost efficiency, and make up to £2bn in savings by 2026, I’m bullish on its long-term prospects.
With its share price looking cheap, I think now seems like a smart time for investors to consider undervalued UK companies such as Barclays.
