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FTSE 100 to ‘smash through 7,000’! I’d buy these 2 bargain stocks before the next leg of the recovery

Harvey Jones
·3-min read
View of Canary Wharf
View of Canary Wharf

As an investor, there’s nothing I like more than buying bargain stocks when prices are cheap. We had a great opportunity in March, and I hope canny investors took it. With the FTSE 100 now recovering to stand at 6,350 today, there’s another opportunity on offer.

I reckon investors like me can still pick up top FTSE 100 stocks at bargain prices. After last week’s Pfizer vaccine news, and the Moderna vaccine news announced yesterday, the outlook for 2021 is that bit brighter.

Goldman Sachs certainly thinks so. It reckons the FTSE 100 will rise 14% by the end of next year, due to monetary stimulus and a global economic recovery. That would lift it to around 7,250 from today’s level. The Pfizer and Moderna vaccines have logistical issues, but there are also others in the pipeline. I’m feeling more optimistic, and here are two stocks I’d buy to play the next leg of the recovery.

I like the BP share price

The BP (LSE: BP) share price crashed along with the oil price during lockdown. But Goldman Sachs reckons it could hit to $65 a barrel next year (up from $44 today). If so, this bargain stock could fly.

Climate change is arguably a bigger challenge than Covid, as the shift to renewables accelerates. However, I still believe wind, solar, and hydrogen have a long way to go before they can shift fossil fuels from the heart of the world economy. Just 3% of the world’s cars are electric, and none of its jet planes. BP may face a tough transition, but when the pandemic eases, oil demand will inevitably surge.

The BP share price is down by half this year, which makes it look like a bargain stock to me. It currently yields a mighty 6.6%, and is the second biggest income payer on the FTSE 100, after British American Tobacco.

I’d buy this bargain stock too

I would also consider buying another top FTSE 100 dividend stock, mining giant BHP Group (LSE: BHP). If the world does escape Covid-19 next year, this will also liberate demand for natural resources stocks.

China, the world’s biggest consumer of commodities, is already on the way back, helping BHP post a 7.2% rise in first-quarter iron ore production. Just remember that there are political risks on this front. China threatened Australian coal imports after the government called for a Covid-19 enquiry, and BHP has large deposits in the country.

The BHP share price has fully recovered from the March crash, and now trades at similar levels to the start of the year. I still reckon it’s a bargain stock, trading at just 12 times earnings. In return, it will give me a juicy yield of 5.6% a year, covered 1.5 times by company earnings.

These numbers make BHP Group look a buy to me. If the vaccines live up to their billings and the world gets back to work, this bargain stock could spearhead the recovery.

The post FTSE 100 to ‘smash through 7,000’! I’d buy these 2 bargain stocks before the next leg of the recovery appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. 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 2020