The FTSE 100 has been soaring. Year to date the UK-leading index is up 6.5%. Over the last year, it has climbed a healthy 8.6%.
As a result, on 17 June it was revealed that the UK had reclaimed its position as Europe’s largest stock market, overtaking France following political volatility there.
UK stocks have struggled since the Brexit vote. However, it seems they’re now coming back into fashion.
But that begs one question: are there still bargains in the UK? With some share prices skyrocketing, investors may feel they’ve missed out.
Still bargains
But I’d argue not to worry. In fact, I think the Footsie is still full to the brim with undervalued shares.
The FTSE 100’s historical average price-to-earnings (P/E) ratio is between 14 and 15. Today, it trades on an average P/E of 11.
That said, investing in the UK doesn’t come without risk. Inflation fell to the government’s 2% target for May, but it remains a threat. We’ve got other issues as well, such as interest rate cuts. There’s further uncertainty with the upcoming election.
But I see plenty of cheap shares with long-term potential despite share prices rising. And given I focus on investing for the long run, I won’t let short-term challenges deter me.
An example
A great example of this is HSBC (LSE: HSBA). If I didn’t own the shares today, I’d strongly consider buying some.
As the chart below shows, despite its P/E rising in recent times, the stock still looks dirt cheap with it sitting at 7.6 today. That’s way below the Footsie average.
Created with TradingView
A key valuation metric for banks is the price-to-book (P/B) ratio. This measures a company’s book value, which is its total assets minus its total liabilities. A reading of 1 is considered fair value. As seen below, HSBC’s P/B is below 0.9.
Created with TradingView
That further highlights to me that the bank looks like good value. That’s all despite its share price rising 10.1% this year and 12.7% over the last 12 months.
Aside from its cheap valuation, there are other reasons I like the look of HSBC. For example, it boasts a whopping 7% dividend yield, nearly double the average of its Footsie peers (3.6%).
I do see risks. Rate cuts in the months to come will shrink the bank’s net interest margin. It’s also heavily exposed to Asia. With countries such as China experiencing a slowdown in growth and volatility in areas such as its property market, that could see HSBC struggle in the near term.
Growth in Asia
But one of the reasons I own the stock is for its investment in Asia. In the years and decades to come, I think it’ll pay dividends. The firm has earmarked billions for investing in the region, especially in areas such as the digital economy. The bank recently predicted that Southeast Asia’s digital economy will be worth $600bn by the end of the decade. That’s up from $218bn last year.
Overall, I reckon HSBC is a great example of how despite share prices prices picking up pace, the Footsie still has undervalued stocks to consider snapping up.
