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With the FTSE 100 trading at a 20% discount to its historical average, many UK shares are currently changing hands at what I feel are bargain prices. With that in mind, here are three incredibly cheap shares investors may want to consider.
1. Barclays
With UK bank shares depressed, Barclays (LSE:BARC) currently trades at a low price. But it may be worth considering these shares on the cheap before the discount disappears.
Despite solid Q2 results, the Barclays share price sank on concerns about lowered UK net interest income guidance. Yet defaults remain below their pre-pandemic levels. Plus, tailwinds like cost cuts and a rebound in investment banking revenue could send the shares higher in the months and years to come.
Macroeconomic uncertainty has no undoubtedly soured market sentiment for UK banks. However, patient investors may see an opportunity amid the gloom.
Interest rates should eventually stabilise at an optimal level. This could create a near-perfect environment for Barclays’ business, as rates won’t be too high to trigger a slew of defaults, without being too low to generate enough income.
The lender’s 57% potential to its average price target (per Refinitiv data) won’t last forever. The Blue Eagle Bank’s strengths and discounted price may offer a lucrative window for it.
2. Lloyds
Like its peer, Lloyds (LSE:LLOY) shares are also at very low prices. This could present the opportunity for investors to scoop up a British banking bargain.
Though its latest results disappointed, shareholders may see an opportunity with this cheap share. This is especially so given that Lloyds possesses a more affluent client base as its average loan-to-value ratios are much lower than its peers, thereby making it more resilient to higher rates.
With structural hedges expected to kick in and provide a boost to earnings in H2 along with upgraded guidance, future returns could be fruitful for the Black Horse Bank.
Temporary negatives like deposit outflows have panicked short-term traders. Nonetheless, gains often come from looking at long-term fundamentals instead. Lloyds boasts strong management, prudent lending, and cost discipline.
Trading way below its book value also limits risks that the stock could fall much further. As such, buying Lloyds shares could allow for gains to accumulate when sentiment surrounding shifts. But, it’s worth noting that Lloyds shares have defied expectations of substantial price rises for some time.
3. IAG
After lagging its peers for the better part of 2023, IAG (LSE:IAG) shares have climbed on surging travel demand. So, with more growth ahead, it might be time to grab shares of this bargain airline stock before prices rise further.
Strong half-year results comfortably beat expectations, buoyed by higher fares and leaner costs, while passenger and seat numbers continued rising briskly. Nevertheless, clouds loom around the outlook for oil, inflation, labour, and potential airport disruptions. That said, no airline flies turbulence-free.
IAG boasts the ability to emerge stronger. Seeing its net debt plunge over the past year, for instance, has been encouraging. With its valuation grounded in an extremely cheap price-to-earnings (P/E) ratio of under 5, I’d say it’s arguable that IAG shares are a no-brainer buy.
It’s important to note, however, that IAG still relies on a full British Airways recovery. But with its other airlines now exceeding pre-Covid capacity, I think profits could continue flying in.
