With Cash ISAs currently offering interest rates of 1.5% or less in most cases, they are unlikely to produce inflation-beating returns over the long run.
Interest rates are expected to remain low in 2020 and beyond, which could make now the right time to pivot to FTSE 100 shares.
Certainly, the index faces a challenging near-term outlook that could cause paper losses for investors.
However, it appears to offer good value for money. As such, now could be an opportune time to buy these two large-cap stocks.
Buying retail shares such as Sainsbury’s (LSE: SBRY) at the present time may seem to be a risky move. After all, consumers have had a pessimistic view about their finances and the wider economy for several years. Political risks such as Brexit and the election may lead to this situation being prolonged throughout 2020.
However, many of the risks facing Sainsbury’s appear to have been priced in by investors. For example, the stock trades on a price-to-earnings (P/E) ratio of just 10.8. This indicates that there is a wide margin of safety on offer that could address a weak operating environment, as well as the highly competitive industry in which the business operates.
Looking ahead, Sainsbury’s is making major changes to its business model. It is aiming to cut costs, close unprofitable stores and invest in pricing to improve its market position. Although this may lead to additional costs in the short run, it could help to reposition the company for growth. Trading on such a low valuation, its investment appeal could be relatively high and it may produce improving returns over the coming years.
Also appearing to offer good value for money at the present time is FTSE 100 oil and gas company Shell (LSE: RDSB). Its recent third-quarter update showed that it was able to deliver improving profitability and cash flow despite weaker oil and gas prices.
However, an uncertain economic environment means that its plans to cut gearing to 25% could take longer than expected. This may cause investor sentiment to weaken in the short run – especially if the world economy’s growth rate is negatively impacted by risk factors such as a US/China trade war and geopolitical uncertainties in oil-producing regions.
Despite this, Shell appears to offer long-term total return potential. Its dividend yield currently stands at 6.8%, with it being covered 1.2 times by profit. With its cash flow expected to improve over the medium term, its dividend growth prospects appear to be high.
In addition, the stock currently trades on a P/E ratio of just 12.5. This could indicate there is a margin of safety on offer that factors in the challenges facing the business. As such, now could be the right time to buy a slice of it for the long term.
- How I’d invest £500 right now
- Forget the Bitcoin price! I’d invest £10k to make a million like this
- 3 reasons why I wouldn’t touch a Cash ISA right now
- A dirt-cheap 7.5%-yielding FTSE 100 dividend stock that I’d buy for 2020
- Why I think rising buy-to-let repossessions are a warning for investors
- Top shares for 2019
Peter Stephens owns shares of Royal Dutch Shell B. 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.
Motley Fool UK 2019