The FTSE 100 tumbles! Here are 2 reasons why I’d still buy UK shares

Amid talks of a stock market crash, the Footsie has fallen. But this Fool still likes the look of UK shares today for the long run.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

It’s not been a great start to the week for the FTSE 100. As I write, it’s down 2.1%. But looking at the performance of the FTSE 100 and FTSE 250 over the last 12 months, it’s safe to say that UK shares are coming back into fashion.

We’ve been through years of uncertainty. Yet slowly but surely, things are now on the up. The FTSE 100 is up 5.9% in the last year. The FTSE 250 has posted an impressive 7.5% gain.

It looks like we’re set for some short-term volatility as fear of a stock market crash heightens. But I’m focused on the bigger picture.

Should you invest £1,000 in British American Tobacco right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if British American Tobacco made the list?

See the 6 stocks

I reckon the UK stock market could keep up its strong performance in the months and years to come. Here are two reasons why.

Reason #1

Despite share prices rising in the last year, I think a number of stocks still look dirt cheap.

One way to judge this is by looking at the average price-to-earnings (P/E) ratio of the FTSE 100. Right now, it sits at around 12 times for trailing earnings and 10 times for forward earnings. Its long-term historical average is between 14 and 15.

It’s not just me who thinks the UK market looks like a pool of opportunities. According to St James’s Place, UK stocks could be trading at as much as a 50% discount to their US peers.

What’s more over 50% of companies within the MSCI UK Index have bought back their shares in the last year. That’s the highest percentage of any market across the world.

Reason #2

Second, we have falling interest rates. We saw the Bank of England cut the base rate to 5% on 1 August. As rates continue to come down, this should provide investor sentiment with a boost, which will hopefully push up share prices.

Falling rates also mean leaving money in the bank becomes less attractive. As a result, investors may feel more inclined to put their money to use elsewhere, such as the stock market.

An example

With that in mind, I’d buy more Barclays (LSE: BARC) shares today if I had the cash. Despite rising 30.7% year to date, I reckon at 202.9p the stock looks dirt cheap on paper.

Created with Highcharts 11.4.3Barclays Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The bank trades on a trailing P/E of just 7.9, as seen below, and a forward P/E of 6.8. That’s way below the FTSE 100 average.


Created with TradingView

On top of that, the stock has a price-to-book ratio of just 0.5. The chart below shows how Barclays stacks up against other banks in the FTSE 100.


Created with TradingView

Future plans

I like the plans the firm has announced in the past couple of months for its future. Earlier this year, it revealed its first major strategic overhaul since 2016.

The business plans to streamline into five divisions to boost efficiency as well as cut costs. If all goes to plan, that should translate into higher profits.

Despite falling rates boosting investor confidence, they’ll pose a risk to Barclays as they’ll squeeze its margins. We’re still dealing with a lot of economic uncertainty, which provides a further threat.

But at its current price, I think Barclays is a prime example of an undervalued UK stock. I’d buy more if I had the cash.

Should you buy British American Tobacco shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

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.

More on Investing Articles

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »