The uncertain economic outlook may mean that some investors are unsure about buying UK stocks at the present time. For example, they could suffer from weak operating conditions, and may even deliver negative returns.
However, the risks posed by an uncertain economic performance may have been priced into the valuations of many FTSE 100 stocks. As such, they could offer favourable risk/reward opportunities on a long-term basis.
Here are two companies that could be among the best shares to buy now because of their low valuations and capacity to benefit from a potential improving long-term economic outlook.
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A cheap bank among UK stocks
Some of the worst-performing UK stocks over the last year have been banks such as Barclays. Its stock price is down by around 20%, even after a recent surge. Low interest rates and a tough economic outlook seem to be causing investor sentiment to weaken. This trend could continue, depending on how coronavirus affects the economy in the coming months.
However, this risk appears to be factored in to the Barclays share price. The bank has a price-to-earnings (P/E) ratio of around 10, yet it’s forecast to produce a 45% rise in net profit next year. This could catalyse investor sentiment, while the prospect of a return to paying dividends may also cause interest in the stock to increase.
Barclays is also reducing its costs to become more efficient. The global nature of its operations may provide some diversification benefits versus UK stocks that lack a geographical spread.
One of the best shares to buy now?
Another FTSE 100 stock that could be one of the best shares to buy now is Barratt. The housebuilder appears to offer good value for money relative to other UK stocks. It has a P/E ratio of 11, and is forecast to post a 10% rise in its bottom line in the next financial year.
It also has a high customer satisfaction rating that may reduce potential costs in the coming years. Its strong balance sheet could mean it’s in a good position to outperform sector peers.
Of course, factors such as a change in government policy towards the housing market could weigh on its future prospects. However, with other potential catalysts, such as low interest rates having the capacity to provide sound operating conditions for the housebuilding sector, the long-term outlook for the company could be relatively positive.
Clearly, Barratt’s lack of international diversity means it’s very dependent on the UK for its financial returns. As such, buying other UK stocks as part of a diverse portfolio could reduce geographic risk. It may also allow an investor to capitalise on faster-growing economies from across the world. Over time, this may produce relatively high returns that have a positive impact on a portfolio’s performance.
