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.
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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.
