I believe these ultra-cheap FTSE 100 shares may value traders a fortune over the long run. Right here’s why.

The financial institution

I’ve lengthy had reservations about shopping for UK-focused banks like Barclays (LSE:BARC). And following their share price surges this 12 months, I’m much more reluctant to speculate.

Barclays is up a formidable 39% within the 12 months thus far. And but the corporate nonetheless faces most of the vital issues it did at the beginning of the 12 months.

Rates of interest are tipped to reverse within the coming months, with step one maybe coming later in June. This could put added strain on banks’ web curiosity margins (NIM), that are already receding following the top of Financial institution of England financial tightening.

At Barclays, the NIM dropped to three.09% through the first quarter from 3.18% a 12 months earlier.

Margins are additionally underneath strain as competitors within the banking business heats up. The size of the battle was underlined by Monzo’s gorgeous full-year launch of earlier this week. It confirmed revenues greater than double in monetary 2023-2024, to £880m, whereas buyer numbers leapt 31% to 9.7m.

With some challengers together with Monzo tipped to turbocharge fundraising with IPOs within the close to future, makes an attempt by conventional excessive avenue banks to develop (and even retain) prospects will get harder.

My closing concern for Barclays is that Britain’s financial system is at risk of a protracted interval of weak progress. It’s a hazard to UK-focused cyclical shares throughout the London inventory market.

Barclays shares are undeniably low cost on paper. A ahead price-to-earnings (P/E) ratio of 6.7 occasions makes it one of many FTSE 100’s least expensive banks.

Nevertheless, this displays the numerous issues it should overcome to develop income within the short-term and past. On the plus facet, spectacular cost-cutting helps to enhance its backside line (working prices dropped 3% in Q1). However this represents nothing greater than a sticking plaster, in my view.

The oilie

Fossil gasoline large BP (LSE:BP) is one other FTSE 100 inventory I’m eager to keep away from this month. I believe there’s a excessive hazard of it delivering disappointing income within the close to time period and past.

That is indicated by the corporate’s ultra-low P/E ratio of seven.2 occasions.

BP’s earnings are intently correlated to the worth of the commodity it drills for. And Brent oil costs — which lately dropped to multi-month lows beneath $80 a barrel — are at risk of additional falls on worrying provide and demand alerts. Newest US stock information confirmed an surprising provide rise up to now seven days.

It’s fairly potential that costs will recuperate later in 2024, offering a lift to BP’s backside line. Contemporary OPEC+ manufacturing curbs may are available in to help power values. A raft of rate of interest cuts are additionally tipped that may assist costs.

However oil majors like this nonetheless face an more and more robust time as renewables steadily take over. And BP hasn’t helped its long-term outlook by scaling again plans to scale back fossil gasoline funding and manufacturing.

Oil and gasoline manufacturing will now drop by 25% by 2030, down from a earlier goal of 40%. This leaves a giant query over the way it will generate future income because the combat in opposition to local weather change intensifies.