Here’s why I see cheap UK shares soaring in the years ahead

UK shares look undervalued and this Fool plans to take advantage of it. Here he details one stock he’s keen to top up on.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

View of Tower Bridge in Autumn

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. 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.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Up 125% in 5 years, the BAE share price has beaten Rolls-Royce. Which is better?

Both the BAE and Rolls-Royce share prices have been having a storming time. Here's how they stack up against each…

Read more »

Investing Articles

With P/E ratios of 7.2 and 9, I think these FTSE 100 shares are bargains!

The FTSE 100 has risen sharply in 2024, but there are still lots of top value shares out there. Royston…

Read more »

Investing Articles

This skyrocketing US growth stock has put all others to shame — including its core investment!

Up 378% this year, the spectacular growth of this US tech stock is leaving all others in the dust. But…

Read more »

Investing Articles

I’d buy this FTSE dividend share to target a lifelong second income

Our writer thinks investing in dividend stocks from the UK stock market is the best way for him to generate…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing For Beginners

The Barclays share price keeps surging! Was I wrong to sell the stock?

Jon Smith explains why the Barclays share price is still rising, even though he feels that further gains could be…

Read more »

Investing Articles

1 stock set to gatecrash the FTSE 100 in 2025!

Our writer considers a quality stock that's poised to join the FTSE 100 next year. Could there also be a…

Read more »

Businesswoman calculating finances in an office
Investing Articles

As earnings growth boosts the Imperial Brands share price, is it a top FTSE 100 dividend choice?

The Imperial Brands share price has come storming back as investors piled in for the big dividends. What's next, after…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
US Stock

Warren Buffett just bought and sold these stocks. Here’s why I don’t agree

Jon Smith takes a look at the recent regulatory filing for Berkshire Hathaway and Warren Buffett and comments on recent…

Read more »