Plenty of UK shares are trading at low valuations after the stock market crash, but this doesn’t always make them good buys. The world has been turned upside down this year, and many businesess could find the future tough.
However, a number of FTSE 100 shares offer positive long-term prospects, and should recover as we head back to something approaching normality. If you buy at today’s low valuations, you could find it a profitable move.
While many UK shares have recovered since the stock market lows of March, events and information group Informa (LSE: INF) isn’t one of them. There’s a reason for this. As well as publishing and research, the company specialises in events and exhibitions, which are still off-limits during the pandemic.
UK shares going cheap
In May, Informa warned revenue is likely to fall by a third this year, from £2.9b to £2bn. It also predicted a brighter outlook, amid signs physical events were picking up in China, as the country eased its lockdown.
Since then, it has been a case of one step forward, two steps back, as countries lift and reimpose lockdowns and travel bans. Today’s low valuation of just 8.03 times earnings reflects that, but also gives investors a buying opportunity. It means you should benefit when the share does eventually recover. However, you’ll have to be patient, because pandemic restrictions aren’t simply going to disappear.
Roughly a third of Informa’s earnings come from subscriptions to business intelligence and academic journals, which should keep things ticking over until people start mixing again. Plus it’s also building digital communities as well.
Investing in UK shares like Informa requires a degree of optimism. If you think business will be locked down forever, then avoid. I’m more optimistic. I’m also hoping that Informa’s dividend will return, given time.
Tempting FTSE 100 buy
Few things are more resilient than the UK housing market. It shrugged off the financial crisis and Brexit and, so far, has shrugged off Covid-19 as well. That’s why I would always include a housebuilder in my portfolio of UK shares. So why not buy the biggest – Barratt Developments (LSE: BDEV).
The Barratt share price has also struggled to recover from the March crash. I expected it to do better, as chancellor Rishi Sunak’s stamp duty holiday gets people moving again. It looks dirt-cheap right now, trading at just 7.17 times earnings. I’d therefore be tempted to buy it today, with the aim of holding on for a long-term recovery.
Low interest rates are also driving demand and sustaining prices, even if lenders are cautious about offering high loan-to-value (LTV) mortgages. Barratt doesn’t pay a dividend at the moment, but shareholder payouts should return, in time.
There’s still nowhere near enough property for our fast-growing population. I’d invest in the companies building the homes we need, while their shares are down.
You might prefer this stock instead.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.