Want Cheap Stocks? Look to the UK
Analysts see value in London markets as political turmoil continues.

In the 45 days between former UK Prime Minister Liz Truss being elected the new leader of the Conservative party and her subsequent resignation announcement, the FTSE 100 lost nearly 5% of its value.
Year-to-date, the 100 largest companies by market cap on the London Stock Exchange are down nearly 6%. Most of the losses came in the fall due to the now-former Prime Minister’s disastrous mini-budget that provided tax cuts of 45 billion British Pounds ($52.3 billion) for the country’s wealthiest individuals.
Recently, the UK markets have rallied on news that the other former Prime Minister, Boris Johnson, would not run to be head of the Conservative party and Prime Minister, putting Rishi Sunak in the job.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The markets feel the former Goldman Sachs analyst is a better choice for the moment.
Despite the gains, the FTSE 100 is still down nearly 6% over the past five years. This compares to a 49% gain for the S&P 500. In addition, according to Bloomberg Intelligence, the FTSE 100 is trading at 8.7x earnings, its lowest multiple since 2011.
“It doesn’t just look cheap relative to its own history — it looks cheap relative to other markets too,” Bloomberg contributor John Stepek wrote on Oct. 24.
“In terms of valuation, the FTSE 100 trades at a discount of around 20% compared to euro-area stocks (as measured by the Stoxx 600 index), and a whopping 45% compared to the S&P 500.”
So the question is: Should U.S. investors be looking to the UK for their next stocks to buy?
Banks, builders healthcare, telecom look cheap
Stepek provides four industries where investors might look for beaten-down stocks that will rally in the future: asset management, homebuilders, healthcare, and telecoms.
However, as Stepek points out when stocks are cheap, they’re cheap for a reason and possibly could get even more affordable, so it makes sense to wait.
In addition, a big problem with the FTSE 100, according to Russ Mould, Investment Director of UK investment platform AJ Bell, is the type of companies included in the index.
“[The FTSE 100 earnings] are heavily reliant on the unforecastable (oils, mining, commodities), the indigestible (banks, life-and non-life insurers) and the interminably slow (telcos, utilities, tobacco),” the Financial Times reported Mould’s comments recently.
The Financial Times suggests that about 50% of the valuation discount for the FTSE 100 is due to poor sector composition. The other 50% valuation gap is attributed to the lengthy U.S. bull market and a higher cost of capital for UK companies due to Brexit.
For many global investors, equities of any kind remain unattractive, so even if the premise that UK stocks are cheap is accurate, there’s little appetite for buying right now.
For aggressive investors that want to take a chance on the UK market’s cheaper valuation, ETFs such as the Franklin FTSE United Kingdom ETF (FLGB) or the iShares MSCI United Kingdom ETF (EWU) might be the safer bet to make.
Will has written professionally for investment and finance publications in both the U.S. and Canada since 2004. A native of Toronto, Canada, his sole objective is to help people become better and more informed investors. Fascinated by how companies make money, he's a keen student of business history. Married and now living in Halifax, Nova Scotia, he's also got an interest in equity and debt crowdfunding.
-
-
The Power of Shareholder Proposals
A look at what shareholder proposals are and the power they can have on a company.
By Ellen Kennedy • Published
-
It’s Not Too Late to Save for Retirement: Five Ways to Step It Up
You’re not alone if you feel like time is running out for you to save, but taking advantage of workplace benefits, increasing the percentage of what you save and more can help.
By Kelly LaVigne, J.D. • Published
-
International Stocks: Time to Explore Investments Abroad
It's time for American investors to pack up their stay-at-home strategy and go shopping abroad for international stocks.
By Nellie S. Huang • Published
-
Investors Nearing Retirement Show Patience With Markets
Despite last year’s upheaval, many investors are sticking with long-term plans and tightening their budgets instead of moving money out of stocks and bonds.
By Matthew Sommer, Ph.D. CFA® • Published
-
Stock Market Today: Stocks Fall After First Republic Bank Suspends Dividend
The embattled lender's dividend cut was just the latest sign of instability in the banking industry.
By Karee Venema • Published
-
Best Consumer Discretionary Stocks to Buy Now
Consumer discretionary stocks have been challenging places to invest in, but these picks could overcome several sector headwinds.
By Will Ashworth • Published
-
Stock Market Today: Stocks Rally on Credit Suisse, First Republic Bank Rescue News
Reports that major U.S. banks would step in to help First Republic Bank helped stocks swing higher Thursday.
By Karee Venema • Published
-
Stock Market Today: Stocks Struggle on Credit Suisse, First Republic Bank Concerns
Chaos in the financial sector stole the spotlight from this morning's inflation and retail sales updates.
By Karee Venema • Published
-
What the Markets’ New Tailwinds Could Look Like in 2023
Historically, the markets bounce back nicely after sharp declines, so focusing on historically high-quality companies trading at today’s lower valuations could be a good recovery strategy.
By Don Calcagni, CFP® • Published
-
Stock Market Today: Nasdaq Gains as Treasury Yields Collapse
The tech-heavy index swung higher Monday as investors sought out safety in government bonds.
By Karee Venema • Published