Many British shares are currently trading at what look like bargain prices FTSE100 down 10% from its last peak. This definitely puts it in the “correction” (rather than total failure) area.

A disaster usually means a decline of 20% or more, so what we’re seeing is uncomfortable but not unprecedented.

The obvious question is whether this is a short-term hesitation or the beginning of something worse.

What’s behind the sale?

Geopolitical risks in the Middle East have sparked a piercing global sell-off as investors flee to safer assets such as cash, gold and government bonds. Oil prices have surged following disruptions around the Strait of Hormuz, raising concerns that higher fuel and transport costs will weigh on inflation.

These higher energy prices came just as the Bank of England was hoping to start cutting interest rates. So now markets are concerned that the introduction of much-needed lower interest rates may be delayed. Moreover, the latest round of US tariffs on cars and other imports has added another layer of uncertainty for global trade.

All things considered, a gentle correction is not surprising. But such corrections are not uncommon and often return to normal. The Footsie is up 13.5% for the year after its last correction in 2022.

For long-term investors who can tolerate volatility, they can provide the opportunity to purchase high-quality UK shares at better prices than usual.

One stock on my watchlist

One action I have been watching is Group 3i (LSE: III), an investment company specializing in private equity and infrastructure. Its largest holding – the European discount store Action – was a key factor influencing 3i’s high profits in recent years.

In the latest annual results, net asset value (NAV) per share reached 2,542p and return on equity (ROE) was 25%. At that time, the price had increased by more than 1,800% since the restructuring began in 2012.

However, more recent results have failed to impress, leading to a decline of 20%. Here’s why I think the low price could be a bargain worth considering.

Underrated income game

Using a discounted cash flow (DCF) model, analysts estimate the stock is trading 68% below fair value. These estimates are supported by a forward price-to-earnings (P/E) ratio of just 4.25.

Moreover, the dividend yield has increased to approximately 3%, which has increased the income attractiveness of these traditionally growth-oriented companies. Still, it has 35 years of payment experience and its dividend grew 19.7% last year.

However, it is worth noting that 3i is characterized by a high level of non-cash income. So while the dividend appears well covered by profits, cash flow only covers about 50% of the payouts.

Additionally, as conflict in the Middle East continues, higher interest rates could weigh on consumer spending. This means companies like Action could see slower growth and lower valuations. If cash generation lags earnings for too long, the dividend could be cut.

Final thoughts

Group 3i has been a long time favorite of mine and still looks as attractive as ever. He owns a collection of real companies, has good results, and now trades at a bargain price.

Just remember that buying during a correction doesn’t mean prices can’t fall further in the compact term. That’s why diversification is significant. Owning a portfolio of stocks across sectors and regions reduces local risk, and dividends continue to grow even when growth stagnates.