A once-in-a-decade opportunity to buy cheap UK shares!

UK stocks have fallen in recent weeks. In fact, the FTSE 100 down about 6% over the month, while the FTSE 250 has decreased by 7%. But some sectors are worse than others. The main victims are financial stocks.

So let’s take a closer look at why this could be a once-in-a-decade opportunity to buy UK shares.

Stocks are falling, but why?

Stocks have fallen over the past month, triggered by the collapse of Silicon Valley Bank. The decline of the tech-financier led many investors to worry that other banks were sitting on huge unrealized bond losses.

Concerns about the health of the global financial sector were exacerbated by Credit Suisse’s eventual buyout UBS. As a result, bank stocks have suffered, and other sectors have followed suit.

But many analysts say the sale of banking stocks is illegal. After all, SVB and Credit Suisse are quite unique. The former has a smaller bond portfolio than the big banks, and more exposure to cleaner technology markets. The latter has faced scandal after scandal.

So, the result of 20% falls on the value of Barclays, among other well-regulated and safe banking stocks, should be seen as an opportunity. For one, the quality of bank loans and the safety of deposits are the most important.

This type of opportunity doesn’t come around often. After all, this correction is caused by fear and not by changes in the business environment or performance issues.

It’s rare that we get the chance to buy a blue-chip stock at a 20% discount than two weeks ago. And in that regard, banks tend to be quite firm. These are cyclical stocks, but there have only been two banking crises in the 21st century that have affected UK banks. This really could be a once in a decade opportunity.

very attractive valuation

Sometimes, stock prices fall for good reasons. So I have to make sure I don’t just buy stocks that look cheaper than before. This stock market correction is a rare opportunity to buy undervalued stocks.

Choosing undervalued stocks is not always easy and requires research. I can start by looking at simple near-term metrics such as the price-to-earnings (P/E) ratio or the EV-to-EBITDA ratio. It’s not a perfect way to value a company, but by comparing these metrics among stocks in the same sector, we can get an idea of ​​which ones are the best.

Then there are more complex metrics such as Discounted Cash Flow (DCF) calculations. This requires us to make an estimate of the company’s future cash flows for 10 years, and that can be challenging. But the result can be worth it.

For example, the DCF calculation shows that Barclays is undervalued by 73%. Combined with the fact that Barclays is trading at a price-to-earnings ratio of just 4.4, it’s way below that FTSE 100 average 12 and below is not equal, I am confident in the stock is a great buy.

But not only banks. Stocks have been pushed down, but I focus on hard-hit financials. I especially like it Hargreaves Lansdowne. It trades with a P/E of 15, but for a tech-cum-finance business, I don’t think it’s expensive. Now, it makes a fortune from interest on client deposits.