Time to buy FTSE 100 shares at a bargain

As Warren Buffett once said, “It is better to buy a good company at a fair price, than a fair company at a good price”. Although in FTSE 100 recently hit an all-time high, it is still filled with good companies at cheap prices, and some UK shares can be a bargain.

For all the talk about Britain’s flagship index being underwhelming, it has been the exact opposite over the past year. The index is up almost 25% since December 2020 and has been doing very well. Investors have flocked to consumer staples, financials and commodities – sectors in which the index has a heavy weighting – during difficult times.

And bad times make solid companies. Over the past decade, the FTSE 100’s lack of tech and growth names has seen investors flock to US stocks for better prospects, thus painting a pessimistic picture of UK equities. However, this also leads to valuable opportunities to pick up undervalued stocks.

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.

Sir John Templeton

All in blue chips

The UK economy may still be in recession. But this should not affect the title index too much. This is because only a quarter of the revenue is derived locally, with the majority coming from emerging markets and the US. As such, this presents an excellent opportunity to invest in FTSE 100 stocks.

China’s emergence from the downturn of the pandemic may have helped fuel the wheels. This is especially the case with commodity stocks such as miners and oil explorers. And with interest rates expected to remain elevated throughout 2023, financials and consumer staples should do well.

Best of all, UK stocks are currently trading at a bargain price. With an average price-to-earnings (P/E) ratio of 14, and a forward P/E of 11, the major index’s multiple is still very low. What’s more, Footsie’s dividend yield averages about 4%, which is pretty good. And with shareholder returns expected to increase in the coming years, there’s no better time to buy than now.

That being said, not all FTSE 100 stocks are created equal or boast bargains. In fact, there are some who are in a hurry because it is overpriced, because of the extraordinary rally in the UK since October. However, I have three favorites to mention.

The first is IAG. The airline group continues to ride on a strong travel industry and is set to return to profitability for the year. And with load factors still at pre-pandemic levels, there’s still plenty of upside potential for travel stocks.

The second is the housekeeper, Taylor Wimpey (LSE:TW) is a developer Shares are slowly recovering from the bottom. The housing market may not return to its highs anytime soon, but the financially strong FTSE 100 stalwart and mega dividend yield (7.5%) offers a lucrative investment opportunity for long-term growth while earning passive income.

Finally, Lloyds (LSE:LLOY) is a good stock to take advantage of the current rate hike cycle. The bank is expected to continue to generate high levels of income from high interest-bearing assets. This could result in shareholders receiving larger dividends as earnings continue to grow.