Why do FTSE 100 shares look so cheap?

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It can’t just be me who thinks a good amount of FTSE 100 shares look dirt cheap right now. I understand it, we’ve been through a rough patch in recent years. However, with the index trading on an average of just 11 times earnings, I think there’s value to be had.

I see this as an opportunity. And I plan to pounce on it. I want to buy cheap shares today and hold them for the decades to come. That’s how I’m building my wealth.

A tough spell

But why do Footsie shares look so cheap? There are a few reasons.

Firstly, as I mentioned, the stock market has been through a gruelling time. The pandemic left investor sentiment at a low not seen for years. The hangover that followed, inflation, high interest rates, and conflicts across the globe, to name just a few things, have also pushed down the value of many companies.

There are other issues too. Brexit sparked large uncertainty in the market. And although the UK population voted to leave all the way back in 2016, it seems we’ve yet to recover.

Light at the end of the tunnel

But I’m confident in the years to come we can see UK shares excel.

There’s still plenty of speculation about when central banks will finally begin to cut interest rates. However, there’s no doubt when they do, investor sentiment will be provided with a massive boost.

To add to that, there’s also good reason to believe the UK economy can perform strongly in the times ahead. Growth may be slow across the next few years. However, forecasts by the Centre for Economics and Business Research predict the UK will be Europe’s top-performing economy in the next 15 years.

With that, I’m buying undervalued shares now before they take off in the years to come.

Snapping up bargains

Take the example of Legal & General (LSE: LGEN). Right now I can pick up shares trading on just six times earnings. In my opinion, that’s a massive bargain.

Paired with its cheap valuation is an 8.4% dividend yield. Of course, dividends are never guaranteed. That said, the growth seen in the Legal & General dividend in the last decade provides me with hope that the business is keen on returning value to shareholders.

Nevertheless, it’s not all plain sailing. The company’s assets under management have fallen in the last year or so as cash-strapped customers have opted to keep their money nearby. However, I don’t view this as a major concern. And when interest rates begin to fall, I’d expect the share price to recover.

The stock has taken a hit in the last week or so. It’s forecasted Legal & General’s results, due for release on 6 March, will come in worse than expected. I view this dip as the perfect time to get in and snap up a bargain. If I have the spare cash in the weeks ahead, that’s exactly what I’ll be doing.

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Charlie Keough has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.