Retail investors have endured a lot of pain in the last few years and share prices have taken a beating. But instead of complaining, I want to make the most of it. That’s why I’m buying cheap UK shares.
It’s a rare opportunity I believe investors should consider pouncing on. Today, the FTSE 100 trades on an average price-to-earnings (P/E) ratio of just 11, which is below its historic average of around 14. Yet yesterday (22 April), the index closed at an all-time high. That’s a mismatch I plan to capitalise on.
Better times ahead
The FTSE 100 has risen 4.4% year to date while the FTSE 250 has climbed 0.8%. With that in mind, it seems like things could be on the up going forward.
Both indexes have been ticking upwards as investor sentiment has steadily been rising. Market spectators are gearing up for interest rate cuts as early as June as inflation slowly drops closer to the government’s 2% target. Looking ahead, as cuts continue over the months and years to come, this should provide markets with a boost.
We’ve also had some positive retail figures in the first few months of the year, which further signal that we’re heading in the right direction.
Of course, threats do persist. Rate cut talk is speculative. And while inflation is falling, it still lingers.
Yet regardless of any potential near-term setbacks, I think UK-listed companies are well-positioned for growth in the years to come. With that, I’m going shopping.
A bargain stock
HSBC (LSE: HSBA) is a perfect example. In the last 12 months, its share price has shot up by 15.4%. This year alone it has climbed 5%. Yet the stock has a P/E ratio of a mere 7.2. I can’t help but feel that looks like an absolute steal.
To go with its dirt cheap valuation, there’s also a whopping 7.4% dividend yield at play. That beats the 3.9% Footsie average by a clear distance.
When I take into consideration the special dividend it plans to pay this year after selling its Canadian unit for just shy of $10bn, the stock boasts an incredible 9.4% yield.
Next year, it’s expected its yield will come in at 7.4%. By 2026, that will rise to 7.9%. That’s part of management’s commitment to return 50% of earnings to shareholders via dividends.
HSBC has wobbled recently. In the last few months, its exposure to Asia has been its Achilles heel. The Chinese property market, in which HSBC is heavily invested, has faltered. That may harm its near-term prospects.
However, in the long run, I expect its exposure to the exciting region to pay off. The business has pivoted to place more focus on building its capabilities in Asia and on higher-growth areas such as wealth management.
At its cut price, I think HSBC shares look like a great opportunity for investors to consider. At least, that’s what I’d be doing. If I had the cash, I’d rush to add more HSBC stock to my holdings.
