Is the FTSE 100 index full of cheap shares?

The UK stock market has been somewhat neglected by institutional investors in recent years. Perhaps that is unsurprising given the FTSE 100 have followed S&P 500 by a considerable margin over the past half decade. London’s flagship index returned 4.24% excluding dividends, compared with a 47% gain posted by its US counterpart.

However, with a reasonable price-to-earnings (P/E) ratio and a defensive stock on offer, I think Footsie is the place to look for cheap equities.

Here’s how I use some home bias in my investment strategy for 2023.

low valuation

The FTSE 100’s forward P/E ratio is 10.4, which compares favorably with the ratio MSCI World Index in 14.6. In essence, this means that the UK’s large-cap stocks trade at a 29% discount compared to the rest of the world.

Some names on the Footsie look very cheap right now, with P/E ratios below 10.

Here are some examples.

FTSE 100 stocks	P/E ratio	12-month stock price performance
Aviva	9.39	-20%
Barclays	6.04	-9%
Glencore	5.74	+37%
Rio Tinto	8.24	+12%
shell	5.17	+24%

The P/E ratio is a useful tool. It offers investors a way to identify cheap investment opportunities and undervalued companies.

However, there is a downside, and I don’t rely on it. For example, it does not provide much indication of the company’s prospects for earnings per share growth or information about debt on the balance sheet.

However, it remains one of the most popular ways to gauge the prospects of value investing – and, by this benchmark at least, many UK stocks currently look cheap.

Defense stock

Another reason I like FTSE 100 stocks is their defensive credentials. Many Footsie companies have relatively stable earnings whether the economy is firing on all cylinders or in a downturn.

For example, pharmaceutical stocks such as AstraZeneca benefiting from strong non-cyclical demand for pharmaceuticals. At the other end of the spectrum, tobacco giants like British American Tobacco also defensive due to strong pricing power when inflation is high.

There is a risk that defensive stock prices can perform during a ‘risky’ environment where growth stocks tend to do better. However, a global recession is a real possibility in 2023. In this context, I want to boost exposure to defense investments.

Dividends

Finally, the FTSE 100 has a great offer for passive income seekers. The index returned an average of 3.54%. Compare this to the S&P 500’s 1.67% yield and the Footsie looks like a no-brainer choice for dividend investors.

High-yielding dividend stocks in the index include investment managers M&G with 8.84% annual yield and mining companies Anglo Americanwhich sports a 5.67% yield.

There is a risk that the company may reduce or delay dividend payments. That said, I think UK shares are a great investment for me when I try to get a second income from the stock market.

My FTSE 100 portfolio

I already have a few FTSE 100 stocks, but I want to expand my UK holdings this year. The combination of low valuation, defensive quality, and dividend yield is too attractive to pass up.

While not without risks, Footsie shares will take pole position in the investment strategy for 2023.