I reckon UK shares won’t stay so cheap for much longer!

More investors continue to pile their money into the UK stock market this year. But some shares still look cheap. Here’s one this Fool likes.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Bar a few holdings, most of my portfolio consists of UK shares. I’ve been snapping them up over the last few years given how cheap they look.

One way to highlight how affordable UK shares are right now is to look at the Footsie’s average price-to-earnings (P/E) ratio. Currently, it’s just 11. That’s a good way off what it has been. Its historical average is between 14 and 15. As a result, I reckon there are a host of buying opportunities out there that investors should consider capitalising on.

The UK stock market’s excelled so far this year. If it keeps up this momentum, it looks like many of the bargain share prices on offer won’t be around for much longer.

Value in the UK

It’s not just me who thinks investing in the UK looks like a smart idea either. For example, financial services giant Hargreaves Lansdown recently said: “The underperformance of the UK market has led to a big gap opening in valuations, with many UK companies starting to look quite cheap compared to their US peers”.

Don’t get me wrong, there are plenty of companies in the US that look exciting investment propositions. The obvious example is Nvidia, which continues to soar and is a stock I own.

But for investors who are on the hunt for shares offering long-term value, I reckon the UK’s the best place to look at the moment.

Acting fast

Investors have been flocking to the UK recently. As such, the cheap share prices on offer won’t last forever. According to Hargreaves Lansdown, the current mismatch in valuations “is not usually sustainable for any length of time, and indeed we have started to see this valuation gap narrow already”.

That’s why I want to act fast. And I’m keen to top up my position in Barclays (LSE: BARC) this month. Its share price has shot up 32.3% this year. Nonetheless, it still looks like a bargain trading on just 7.9 times earnings.

Furthermore, the stock’s trading on 6.5 times forward earnings. Its price-to-book ratio, a common valuation metric for banks, is just 0.4.

Falling interest rates are the most obvious threat to Barclays. Banks have seen their margins expand as they’ve enjoyed a spell of higher rates. With it likely the Bank of England will start bringing rates down this year, that will see the firm’s net interest income fall.

But with the business placing more focus on streamlining, I like the look of where it’s going. This has been a major issue for the bank in recent years. As a shareholder, I’m glad to see CEO CS Venkatakrishnan addressing the issue.

I must also mention its healthy 3.9% dividend yield is covered three times by earnings. That will offer a nice stream of passive income for my portfolio. With the income I receive, I plan to reinvest it back into purchasing more cheap shares. That way I can grow my wealth quicker.

All in all, Barclays is a brilliant example of a cheap UK stock I think investors should consider buying today. If I had the cash, I’d happily add to my position.

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 and Nvidia. The Motley Fool UK has recommended Barclays Plc, Hargreaves Lansdown Plc, and Nvidia. 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.

More on Investing Articles

Investing Articles

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »

Investing Articles

How I could earn a second income worth £35,000

Millions of us invest for a second income. Our writer explains how he's making it work and shares tips for…

Read more »

Investing Articles

3 ways Labour could impact the Rolls-Royce share price

Labour have swept to power on a pro-worker, pro-business ticket. But how could the new government influence the Rolls-Royce share…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

No savings at 35? I’d use Warren Buffett’s method to try and build massive wealth

Warren Buffett made most of his multi-billion-dollar fortune after turning 50. So what was his trick to building enormous wealth…

Read more »