British value stocks as an investment of the decade

The sky is beginning to clear over Britain and domestic stocks still have plenty of room to fill the gap between record highs. In world markets, the shift from technology and growth stocks to value and cyclical stocks has accelerated, with the majority of them being in Britain. The longer-term outlook is becoming clearer and British stocks might be the market opportunity of the decade.

Lack of technology titles

The British stock market has been troubled in recent years by a lack of "sexy" technology and growth stocks, which has not helped the main FTSE index getting closer to its previous highs. However, with the issue of Brexit resolved, British stocks, which are mainly valuable, cyclical, and with a stable dividend, show that they are relatively cheap and even undervalued compared to other benchmarks.

British stocks are the cheapest on the market

Over the years, Brexit has put British stock valuations at levels where they are by far the cheapest compared to stock valuations of other developed countries. Concerns about the pandemic then added to pressure over the past year, and value stocks were close to record lows compared to growth stocks. At some point, the prices of value stocks were even cheaper than in 2000, when there was a technology bubble in the United States. In the end, the lockdowns caused by the pandemic did not lead to the bankruptcy of British companies, and thanks to the fact that Britain is among the fastest vaccinating countries in the world, these fears are unlikely to materialize. At the same time, thanks to the resolved Brexit, British companies can operate with a much lower degree of uncertainty.

It is very unlikely that Britain will be cut off from the rest of the world for the next five years due to Brexit. In fact, it will remain a vibrant and competitive economy that will establish trade agreements with other global partners. The OECD estimates that the British economy will grow by 5.1% this year and by 4.2% in 2022.

Chart: FTSE daily chart (source: PT cTrader)

The best risk-reward ratio

So how risky are British stocks? They are risky, but not more than the shares of other developed economies. At the beginning of the year, value stocks were the cheapest overall. When compared to all indicators, such as price to sales, price to dividend, or price to cash flow. Despite the initial increase since the beginning of the year, however, they are still very cheap and in the long run, this is a very interesting opportunity. So British stocks now offer the best comparison of risk and potential appreciation. Year-on-year growth is estimated at 8%, which is very good in the world of zero bond yields.

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