The FTSE 100 is packed with cheap shares right now, thanks to ongoing stock market volatility. With the deadline for contributing to this year’s Stocks and Shares ISA allowance just days away, should investors take the plunge?
With the outcome of the Iran conflict still uncertain, markets could fall further and shares may get cheaper still. But if we see a swift resolution, even an imperfect one, prices could rebound quickly and the opportunity may disappear.
Investors can take two simple steps to protect themselves. First, drip-feed money into the market rather than investing a large lump sum all at once. Second, invest with a long-term mindset, giving markets time to stabilise and allowing both share price growth and dividend income to compound. In truth, that’s the best approach to buying shares at any time.
Going shopping for shares
Many FTSE 100 stocks look remarkably cheap, measured by their price-to-earnings (P/E) ratios. Insurer and asset manager Legal & General Group has a P/E of just 0.3, while yielding more than 9%. Consumer goods giant Reckitt Benckiser trades on a P/E of only 0.6 and yields 4.25%, far higher than it has for years. Both are established blue-chips. While they have faced challenges recently, today’s ultra-low valuations make them worth considering for long-term investors, in my view.
The bargains don’t stop there. Private equity specialist 3i Group (LSE: III) is usually eye-wateringly expensive, but the recent sell-off has hit the shares hard. This is despite the strength of its biggest holding, European discount retailer Action, which remains very profitable and is now expanding into the US.
Typically, investment trust 3i Group trades at a significant premium to its underlying net asset value. However, with the shares down by a third over the last year, it trades at a massive discount of around 24%.
On Monday (30 March), CEO Simon Borrows bought 350,147 ordinary shares in 3i, spending a striking £8.94m. He clearly believes there’s significant value at current levels.
3i Group is on a big discount
This is the largest holding in my SIPP, so the sell-off has been painful. I’m sticking with 3i because I believe the market reaction has been overdone. The US expansion story is particularly compelling, even if it’s a notoriously difficult market to crack. There are signs of a slowdown in Europe, but the scale of the recent decline looks excessive to me. For brave, growth-focused investors with a long-term outlook, I think 3i Group is worth considering.
There are plenty more attractively valued FTSE 100 names. JD Sports Fashion trades on a P/E of 6.6, International Consolidated Airlines Group trades at 6.8, IG Group at 6.9, NatWest at 9.1, Barclays at 10.1, Imperial Brands at 10.6 and BT Group at 11.5. Here are three more to consider: GSK (11.9), Persimmon (12.1) and Bunzl (12.3) may not be dirt cheap, but they still appear good value in today’s market.
Today, global markets are rising on hopes of some kind of peace deal. Whether that optimism proves justified is anybody’s guess. But if markets continue to recover, today’s bargains may not last. In the short run, nobody knows what will happen next but history shows that buying quality shares at low valuations pays off over time. That’s why, despite the risks, this could be a compelling moment.
