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It’s not just me. Global investors are also rushing to buy dirt-cheap UK shares

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One English pound placed on a graph to represent an economic down turn
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Buying dirt-cheap UK shares is a key strategy for building a pot of money for my retirement. I like to buy and hold domestic stocks for the long term, to benefit from dividend income and growth.

I particularly like buying when valuations are low, as they are today. I’m not the only one who thinks that. Word has spread far beyond these shores. Overseas investors are clamouring to buy dirt-cheap UK shares. They seem to take a more positive view of their prospects than many British investors.

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We have all seen how Morrisons has become a target for no less than three US private equity groups. They’re fighting tooth and nail to buy the UK’s fourth biggest supermarket chain, a stock many Britons were struggling to get excited about. The Morrisons share price had been in a slow decline since peaking at around 324p in December 2011, almost a decade ago.

US investors are hungry for dirt-cheap UK shares

As recently as 18 June, it was idling at 178p. Then US investors stepped up, tempted by its generous dividends, integrated supply chain and store estate ownership. Today, buyers have to pay 266p, some 50% more. Other dirt-cheap UK shares could find themselves in a similar position.

Some reckon Sainsbury’s could be a takeover target, as it has been before. Speculation has even spread to Tesco, although it’s £17bn market-cap makes it rather big to swallow in one gulp. In June, housebuilder St. Modwen Properties succumbed to a £1.25bn offer from Blackstone, while infrastructure investor John Laing Group is being bought by KKR for £2bn.

Dirt-cheap UK shares are in vogue, but I’ve mixed views about this. I remember the hostile Kraft takeover of chocolate maker Cadbury, and the destruction that wrought to a great British institution. Many believe the ARM Holdings sell off was a disaster for British tech. Selling our largest semiconductor manufacturer Newport Wafer Fab to the Chinese also looks questionable.

Buying stocks is never risk free

Yet this activity is also a wake-up call to British investors. Our stock market is full of dirt-cheap UK shares, just like The Motley Fool has been saying for some time. Overseas stock markets that have performed better now look expensive, notably the US. The S&P 500 trades at 21.2 times forecast company earnings, against just 13.7 for the UK.

Naturally, there are still major risks. Brexit still hasn’t completely played out. Nor has the pandemic, as the Delta variant spreads rapidly (and don’t tell me it’ll be the last Covid mutant strain to emerge). If the reopening is delayed again, sentiment will slip. Today’s GDP figures show the UK grew just 0.8% in May, lower than the expected 1.5%.

There are always risks, and they won’t stop me from scouring the market for dirt-cheap UK shares. As you can see from the news, I’m not the only one going bargain hunting.

This tempts me.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

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