The stock market has been on a rampage over the last eight months, with UK shares soaring to new heights. The FTSE 250 has surged more than 25% since October 2023, putting it firmly back in bull market territory. Similarly, the flagship FTSE 100 is also up by double-digits, with the FTSE All-Share following suit.
Despite this impressive growth, many UK shares are still trading below their pre-inflation prices, presenting a unique opportunity for investors. If the current stock market momentum continues, these cheap shares could soon deliver fantastic results.
Investors looking to capitalize on slashed prices need to exercise caution and diligence when selecting companies for their portfolio. Not all cheap stocks are bargains, and some may never recover to their former highs. It is essential to look beyond the stock market climate and examine the financial health and competitive position of a company before investing.
One stock that stands out among the cheapest in the FTSE 100 is Centrica (LSE:CNA), an energy and utilities business benefiting from higher energy prices. While its price-to-earnings ratio may seem like a massive bargain at 2.0, a closer look reveals that the forward P/E ratio is 7.0, indicating that the stock may not be as cheap as it appears.
In the short term, Centrica looks promising, with analysts recommending a buy rating and a 27% potential upside. However, in the long run, the transition from gas boilers to heat pumps could pose a challenge for the company, opening the door for smaller competitors to gain market share.
Overall, the stock market recovery is well underway, presenting opportunities for investors to capitalize on cheap shares. However, careful consideration and research are essential to avoid falling into traps and ensure long-term success in the market.
