A large part of my investment strategy involves buying UK shares. I think there are plenty of opportunities right now to snap up undervalued companies.
But not everyone may share my opinion. In fact, it seems a large part of the market doesn’t. The reason I think UK shares are such a great buying opportunity is because so many have taken a massive hit in recent times.
I can see why
In all fairness, I can see why. What we’ve been through in the last few years has been nothing short of gruelling.
It could be argued Brexit was the catalyst for the uncertainty we’ve seen in the market. That was nearly 10 years ago now. I’m not sure that UK shares have recovered yet.
There’s also been a pandemic thrown into the mix. That sent global markets tumbling. We saw trillions wiped off company valuations.
Now we’re battling red hot inflation and a high interest rate environment. Us retail investors have certainly been put to the test in recent times.
Better times ahead
But I’m a Fool. I like to block out the noise. I conduct my own research, with my long-term goals in mind, and execute accordingly. That’s why I’ve been rushing to snap up UK shares.
In my opinion, the future looks bright. Firstly, it’s forecasted that the Bank of England will begin cutting interest rates in the fourth quarter of this year. Currently, the base rate sits at 5.25%. According to the latest reports, it could be at 3% by the end of 2025.
There’s also the longer-term outlook. Growth may be modest in the foreseeable future. But the UK economy is predicted to be one of the strongest performers in Europe in the next 10-15 years.
Time to buy
As I write, the FTSE 100 trades on an average of 10 times earnings. That’s dirt cheap. With that, I plan to go shopping.
I’m looking at Diageo (LSE: DGE). In the last 12 months, its share price has slid 18%. I’m not complaining. That now means the stock is trading at the cheapest level it has for years.
It currently trades on a price-to-sales ratio of around 3.9. That’s the lowest it has been for over a decade. Its current price-to-earnings ratio (20.8) is also below its historical average of the mid-20s.
There is a reason for this. Sales have slowed recently. That’s especially true for its Latin America and Caribbean territory, where sales declined by over $300m for the six months to 31 December.
However, that’s justified given many consumers have been tightening their belts off the back of racing inflation. And instead, in the long run, I think its presence in the region will pay off as disposable incomes rise.
Short-term blips like this aren’t of concern to me. With premium brands under its umbrella including Guinness and Smirnoff, I expect the business to get back on track in the months and years to come.
It has ambitious plans to increase its market share to 6% by 2030 from the 4.7% it has today. I’m confident it can achieve that. As such, I plan to open a position in February with any investable cash.
