The FTSE 100 index hasn’t gone anywhere in September, but many stocks’ share prices have been rising. These index-beaters have more than made up for the fall seen during the stock market crash earlier in the year. Some of them are even at all-time highs right now. This is all very good as long as we already have these shares as part of our investment portfolios.
But for those of us who would like to buy high-quality shares with good prospects now, the big challenge is that they have already run up quite a bit. As a result, we can now reasonably doubt if their share prices will rise much further.
We may be tempted to buy FTSE 100 stocks that are still cheap. I get that. In fact, I have three such on my own stock watch list. But I’d suggest buying them only based on your own risk threshold.
High risk: IAG is a cheap FTSE 100 share for the brave
I don’t think there’s any debate about the fact that FTSE 100 aviation stock International Consolidated Airlines Group is a high-risk bet now. Its share price is a 91p as I write. However, at a fraction of its early 2020 share price, the owner of British Airways can be a high-risk/high-reward bet for the brave investor over time. But ‘high risk’ is the operative phrase here. Everyone knows the big blow airlines have suffered from Covid-19 and following from that, the company’s revenues more than halved in the first six months of this year. It’s unlikely to recover in a hurry, considering that the pandemic is nowhere near over. But the patient investor may still end up ahead.
Medium risk: Barratt Developments can see better times ahead
A less risky, but still fairly beaten down stock is the FTSE 100 real estate company Barratt Developments. At £4.8, its share price is at almost half the levels seen in pre-coronavirus months this year. Property stocks get hit hard by economic slowdowns, so investors always need to be prepared for that. The lockdown made matters worse.
The results have been poor recently, as expected. But unlike aviation, property’s prospects appear to be better. Housing market numbers are sharply improved. A stamp duty holiday is another shot in the arm for builders as well. If Brexit negotiations go well, the likes of BDEV will gain. To put it differently, the stock isn’t without risks. But these risks may well be met.
Low risk: Rentokil Initial has secure demand
Finally, the lowest risk stock on my watchlist right now is the FTSE 100 hygiene services and pest control provider Rentokil Initial, which I talk about in greater detail in another article today. It’s share price was £5.5 at yesterday’s close, which isn’t very far from the BDEV share price. Some would argue that it’s not cheap going by its steep earnings ratio and the run up it has seen over the year. I think even if it looks expensive right now, given the nature of its services, it isn’t likely to stagnate for the long term, especially in a weak economy that favours defensives.
