Finding FTSE 100 stocks to buy in November seems relatively easy to me. After this year’s stock market dip, the index is packed with dirt-cheap bargain stocks. Many are available at such low valuations and pay such high dividends, it almost makes me suspicious.
Some of these FTSE 100 stock opportunities are clearly too good to be true, but others aren’t. The big question I face is, which ones are true bargains and which are hidden value traps?
Here’s how I’d buy FTSE 100 stocks
The FTSE 100 no doubt has plenty of both. I would start by looking at company fundamentals, such as whether it has a strong balance sheet, popular brand, unique product or loyal customer base.
Companies in this position should offer me superior long-term growth opportunities, whatever the economic weather.
I would also look at how each sector has performed. For example, energy stocks have done brilliantly this year, as prices rocket due to the war in Ukraine.
But what threats does they face now? A slowing global economy could squeeze the oil price as demand falls.
Expectations of winter energy shortages may prove alarmist, as European countries have embarked on a largely successful scramble to fill storage facilities. Energy prices may relent.
I would apply the same thinking to, say, the banking sector. Banks are likely to benefit from rising interest rates, as it allows them to widen their net interest margins, the difference between what they pay savers and charge borrowers.
Yet rising interest charges will also increase loan impairments, as business and personal customers struggle to service their debts.
I also have to decide whether to go shopping for shares in beaten-down sectors, in the hope they will recover, or target high-flying sectors that may have even further to climb.
After finding a tempting sector, the next decision is which stock to buy. I always start by examining basic numbers such as valuations and yields. How do they compare to rivals on metrics such as revenues and customer bases?
Then I might look at their profit trajectory over the past five years, and glance at their forecasts too.
I will check out recent reports and trading statements, to see where the opportunities and threats lie. While I’m at it, I would check their net debt and cash flow figures.
Finally, I would look at my own financial and emotional position. Can I afford to take a big risk right now? Am I investing for income and growth? What is my timescale for holding the stock? Will it balance my existing holdings?
Only once I have addressed all of his questions will I click the ‘buy’ button and add another stock to my portfolio, or top up an existing one.
That’s a lot of questions to address, but the nights are drawing in and building a portfolio of shares will prove more rewarding in the longer run than gawping at the telly.
November is almost upon us. It’s time for me to buy more FTSE 100 stocks.
The post How I’d aim to buy top FTSE 100 stocks in November appeared first on The Motley Fool UK.
Harvey Jones doesn't hold any of the shares mentioned in this article. 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 2022