Now could be the opportunity for me to snap up overlooked FTSE shares

Last week, the FTSE 100 hit a new record high. Behavioural psychology tells us that people tend to avoid buying when prices are high, believing they aren’t getting good value. To some extent, I agree. But that’s why I think now is the perfect time for me to target undervalued stocks before the crowd rushes in.

Trying to beat the crowd

If you think about it, the logical step for investors to take after seeing the index breaking to new highs is to look for individual stocks that offer better value. Over the coming year, I’d expect this category of stocks to rally, as people cycle out of expensive shares and put that money to work in companies with lower valuation metrics.

If I can buy now, it could enable me to beat the inflows that could occur in the coming months. Of course, I don’t know exactly which FTSE 100 stocks will be flavour of the month. But I can spread my risk around a basket of companies with below-average price-to-earnings (P/E) ratios. In theory, all could eventually trade at a fairer value over time.

The risk to this strategy is that investors might decide to stick to buying high-growth stocks, even at lofty valuations. If people are optimistic about the company’s outlook, there’s no reason why something overvalued can’t become even more highly valued in the short run.

A suggestion to ponder

One example that I’m considering right now is Barclays (LSE:BARC). Despite contributing to the FTSE 100 rally with a 57% jump in the past year, the banking stock has a P/E ratio of 9.03. This is below the benchmark fair value of 10 I use, and well below the 16.6 figure of the FTSE 100 average.

The bank is doing well as part of a major cost-cutting programme. This should yield over £1bn of annual savings by next year. The simplified business lines are helping to increase efficiency. Further, the trading desks have handled market volatility well, boosting profits from this division.

Looking forward, I think the stock could rise further as the valuation increases. It’s pushing for more AI and digital banking initiatives, which should help progress, with income investors likely being attracted to the recent increases in the dividend per share amounts.

The bank is partly reliant on the success of the UK economy, which is a risk. The April GDP print showing a 0.3% contraction could spark some fears about the health of the economy going forward.

Even with this, the stock could see more people buying it as they look for good value picks in the index right now. Therefore, I’m strongly thinking about buying.

The post Now could be the opportunity for me to snap up overlooked FTSE shares appeared first on The Motley Fool UK.

Should you buy Barclays now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

More reading

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc. 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.