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In my opinion, the last few years have been good for bargain hunting on the London stock market. While some US stocks have reached what I consider unjustifiable valuations, my search for stocks to buy on this side of the pond continues to turn up what I believe are potentially real bargains.
No one knows how long that can last, but I keep making hay while the sun shines (metaphorically, of course: a little real sun seems more than necessary!).
Are British shares as cheap as they seem?
The stock market contains thousands of companies and some of them look expensive to me, not cheap.
However, overall, there is a perception that, although the FTSE 100 hit a new all-time high last year, many blue-chip UK shares look pretty cheap.
Look, for example, at the top five stocks in the index.
AstraZeneca is trading with a price-earnings (P/E) ratio of 32 and Relax in 38. But Shell It's the 13thHSBC only 8, and Unilever on the 21st.
Keep in mind that those are the most valuable companies. At the other end of the FTSE 100, British land It has a P/E ratio of 18. Khaki 14, Londonmetric 16, Hiscox 6, and Endeavor Mining Last year it generated losses, so the P/E ratio does not apply.
Still, the big picture is clear. There are quite a few blue-chip companies trading at a fairly low P/E ratio.
Now, a P/E ratio is just one way to evaluate value when looking for stocks to buy. So while HSBC looks cheap on that metric, I also value bank stocks in other ways. But even if we look at the price-to-book ratio, for example, HSBC looks cheap to me.
What is happening in the London market?
Sometimes a low price is low for a reason. Therefore, just because a stock looks cheap doesn't necessarily mean it will be a bargain.
I started the year looking for stocks to buy for my portfolio.
While I like HSBC's large customer base, its proven business and its attractive 6% dividend yield, I remain concerned about the risks that an economic slowdown could pose to loan default rates and bank profits. So for now I don't plan to buy HSBC shares.
A stock I've been buying
On the contrary, a part I have been shopping lately is JD Sports (LSE: JD).
The retailer has seen its share price fall 14% in one year and 41% in five years. The potential for an economic slowdown that I mentioned earlier could impact consumer spending and hurt JD's sales.
So when I was looking for stocks to buy this month, why did I land on JD Sports?
The sportswear market is large. In the long term, I hope it remains that way.
JD Sports has demonstrated its model in the UK. That market is still doing well, but the company has implemented its formula in markets around the world. Last year's acquisition of a major U.S. rival drained the company's cash, but it is expected to be able to boost sales and profits in the coming years.
The company has a market capitalization of £5bn, but expects annual profit before tax and adjustment items to be close to £1bn. To me, the share price still looks cheap.
