Apart from a few holdings, most of my portfolio is made up of UK stocks, which I have been buying up over the last few years because they looked so cheap.
Just how affordable UK stocks are right now can be seen by looking at the average price-to-earnings (P/E) ratio on the Footsie. It currently stands at just 11, which is a long way off from where it has been. The historical average is between 14 and 15. As such, I believe there are plenty of buying opportunities that investors should take advantage of.
The UK stock market has performed brilliantly so far this year, and if this momentum continues, many of the bargain prices on offer may not be available for much longer.
Value in UK
I am not the only one who thinks investing in the UK is a smart idea. For example, financial services giant Hargreaves Lansdown said recently: “The underperformance of the UK market has created a large gap in valuations, with many UK companies looking quite cheap compared to their US counterparts.“.
Don’t get me wrong, there are many companies in the US that offer exciting investment opportunities. The most obvious example is NVIDIAwhose price continues to rise and whose shares I own.
However, for investors looking for stocks with long-term value, I believe the UK is currently the best place to be.
Act quickly
Investors have been flocking to the UK recently. The cheap share prices on offer there will therefore not last forever. According to Hargreaves Lansdown, the current valuation deficit is ” cannot normally be sustained over a longer period of time, and in fact we have already started to close this valuation gap“.
That is why I want to act quickly. And I want to strengthen my position in Barclays (LSE: BARC) this month. The share price is up 32.3% this year. However, with a price-to-earnings ratio of just 7.9, it still looks like a bargain.
In addition, the stock is trading at 6.5 times expected earnings. The price-to-book ratio, a common valuation measure for banks, is only 0.4.
The most obvious threat to Barclays is falling interest rates. Banks’ margins have increased as they have enjoyed a period of higher interest rates. The Bank of England is likely to start cutting interest rates this year, which will lead to a decline in the company’s net interest income.
But as the company puts more emphasis on rationalisation, I like the direction it is heading. This has been a big theme for the bank in recent years. As a shareholder, I am happy that CEO CS Venkatakrishnan is taking up this issue.
I must also mention that the healthy dividend yield of 3.9% is covered by earnings three times over. This will provide a nice passive income to my portfolio. With the income I receive, I plan to reinvest it in buying more cheap stocks. This way, I can grow my wealth faster.
All in all, Barclays is a great example of a cheap UK stock that I think investors should consider buying today. If I had the money, I would be happy to add to my position.
The post “I think UK stocks won’t stay this cheap for much longer!” appeared first on The Motley Fool UK.
Further reading
Charlie Keough has positions in Barclays Plc and Nvidia. The Motley Fool UK has recommended Barclays Plc, Hargreaves Lansdown Plc and Nvidia. The views expressed on companies mentioned in this article are those of the author and may therefore 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.
Motley Fool UK 2024
