These UK shares are dirt cheap. Time to buy?

Christopher Ruane has been buying UK shares he thinks offer excellent long-term value. Here’s why he’s upbeat even in a turbulent market.

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It is easy to find doom-mongers when it comes to the outlook for the British economy. That also seems to be true for many UK shares. While the flagship FSTE 100 index hit a new all-time high level earlier this year, many individual shares look dirt cheap to me.

Banks are an example. Lloyds trades on a price-to-earnings (P/E) ratio of just six, while rival Barclays looks even cheaper at five.

It is not just banks, though.

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Telecom operators BT and Vodafone both trade on P/E ratios in low-to-mid single-digits.

Financial services company Legal & General trades on a P/E ratio of six, while British American Tobacco sells for less than seven times earnings.

Those are all FTSE 100 companies. Why do they seem dirt cheap – and is it a buying opportunity for my portfolio?

Risk and reward

I think a key reason for the apparently cheap prices is that many investors perceive multiple risks that could affect the earnings of British businesses in coming years.

For example, a weak economy and high interest rates could see more borrowers fall behind on mortgage repayments. That would likely reduce earnings at banks.

Higher interest rates might also add substantial new costs for companies with lots of debt on their balance sheets, like Vodafone and British American Tobacco.

So, perhaps some shares are not actually as cheap as they may seem today. That depends on how well the businesses do in coming years.

Long-term view

Of course, nobody knows what will happen in future. Clearly a lot of investors are pricing in sizeable risks to UK shares. They could turn out to be right.

Still, I am a long-term investor. Are things really as bad as some current share prices seem to suggest?

I do not think so.

Take Legal & General as an example. It does face risks, from a volatile investment environment to increased competition from fintech firms. But its valuation looks dirt cheap to me even considering those risks. It has a large customer base, iconic brand and business model that has proven enormously profitable.

I reckon that means it could trade for a higher price in future. That said, it is 6% lower over the past year and 16% below where it stood five years ago.

Created with Highcharts 11.4.3Legal & General Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL6 Jul 20186 Jul 2025Zoom ▾2019202020212022202320242025202020202022202220242024www.fool.co.uk

But it pays an 8.6% yield. As a long-term investor, I have put the firm in my portfolio. I will be happy to earn its juicy dividend while holding the shares in hope of long-term capital gain.

Time to buy

In fact, I think now could be a great time for investors to buy UK shares.

As always, it matters what one buys – and how much one pays.

I reckon some apparently cheap shares reflect the substantial risks they carry. But others look like real bargains to me. That is why I continue to add them to my portfolio.

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Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in British American Tobacco P.l.c. and Legal & General Group Plc. The Motley Fool UK has recommended Barclays Plc, British American Tobacco P.l.c., Lloyds Banking Group Plc, and Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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