The FTSE 100 has made a strong start to the year, hitting a three-year high of more than 7,700, and there could be more to come.
I spent the autumn buying cheap UK shares whenever the FTSE 100 dipped. I’m not holding back now the market is rising. I’ve got £1,000 in my trading account, and I’m looking for shares to buy and hold for the long term. So where should I start?
Still bargains on the FTSE 100
My first step is to look at why the FTSE 100 is on a roll, jumping 3.21% over the last five trading days.
The main reason seems to be that the US dollar has weakened, as investors anticipate a Federal Reserve monetary policy ‘pivot’. As the US economy weakens, we’re closer to the day when the Fed turns dovish and goes easy on interest rate hikes.
The prospect has boosted commodity prices, which are priced in dollars, and lifted mining stocks, which are heavily represented on the FTSE 100.
Anglo American is up 7.82% in a week lifting annual growth to 10.9%. BHP Group and Rio Tinto are also doing well. Yet there’s no guarantee this will continue. With the world on the brink of a recession, and China’s Covid reopening experiment hanging in the balance, demand for raw materials could just as easily drop. If that happened, it could hit commodity stocks and take down the FTSE 100 too.
That makes me cautious about jumping onto the current spike. I prefer to bide my time and choose my targets carefully.
I’m happy with my exposure to the mining sector, having bought Rio Tinto on 8 October. It’s up 16.26% since then. I bought housebuilder Persimmon three days later and it’s up 13.82% since then. Over the last year, it has crashed a staggering 52.68%. My purchase of Rolls-Royce on 1 November is up 25.96%. Over one year, the share price is down 18.51%.
Plenty of cheap stocks
All three looked cheap at the time, having fallen sharply in the preceding months (or years in the case of Rolls-Royce).
So are there similar bargains out there today? I’d argue that there are. Troubled telecoms giant BT Group may have spiked 9.95% in the last week, but it’s hardly overpriced trading at just 6.2 times earnings. Its stock is down 53% over five years and 29% in a year.
BT has more than its share of troubles, but as recent days have shown, investors are keen to catch any rebound.
Barclays has also benefited from this year’s brief bout of bullishness, rising 8.01%. Yet it’s still down 16% measured over one year and 11% in five years, and has a low valuation of 4.6 times earnings.
Housebuilding has picked up, despite falling property prices. Valuations remain cheap, with Taylor Wimpey trading at six times earnings and yielding 7.94%.
I’ve had my eye on household goods giant Unilever for some time. Its stock hasn’t moved over the last week, and trades only around 5% higher than one and five years ago. It’s now at the top of my wish list.
So a quick search has found four stocks I’d happily add to my portfolio at what I reckon is a low, low price. I’ll do a bit more in-depth research and take my pick.
Harvey Jones holds shares in Lloyds Banking Group, Persimmon, Rio Tinto and Rolls-Royce. The Motley Fool UK has recommended Barclays, Lloyds Banking Group and Unilever. 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 2023