Best stocks to buy now: I think these 2 FTSE 100 shares are too cheap

These FTSE 100 companies have bright growth prospects. Considering their valuations, they could be some of the best shares to buy now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

In my opinion, the FTSE 100 contains some of the best stocks to buy now. Here are two companies I believe are too cheap, based on their long-term potential.

FTSE 100

The first on my list is the life insurance and pension management group Phoenix (LSE: PHNX). This organisation provides a relatively complex but lucrative service.

Managing pension funds can be capital-intensive, costly and fraught with regulatory risks. Even for other blue-chip companies, such as Marks & Spencer, it can be easier to outsource pension management or negotiate agreements to reduce liabilities

Phoenix’s specialises in the acquisition and management of pension funds. By focusing on this one core area, the group can efficiently manage these assets and profit handsomely. 

This business model is highly profitable, and Phoenix is committed to returning capital to investors. Analysts are predicting a 6.6% dividend yield for 2021, although this is just a forecast. At the same time, the stock is trading at a forward P/E of 8.8. Once again, these are just forecasts, but I think the company is far too cheap, considering its potential. 

I’d buy the FTSE 100-listed group because I believe it has tremendous growth potential. Other blue-chips are queuing up to offload their pension obligations and this presents an enormous opportunity for the group.

That said, this company isn’t without its risks. Additional layers of regulation could increase the group’s costs, pushing down profit margins. Phoenix’s large balance sheet is also complex to understand. This could mean the organisation is exposed to significant risks, which aren’t entirely visible to investors until it’s too late. 

Best stocks to buy now

I believe one of the best investments over the next few years will be resource companies. There are two reasons why. First of all, countries worldwide are planning to spend tens of billions of pounds over the next few years on infrastructure projects.

Secondly, some economists expect inflation to increase dramatically over the next few years, and commodity prices tend to increase during periods of high inflation.

So I think Anglo American (LSE: AAL) is one of the best shares to buy now in the FTSE 100 to play this theme. I’d buy the stock for my portfolio because it has a diversified collection of resource assets around the world. It produces commodities such as copper, iron ore, coal and platinum group metals. 

Rising commodity prices are already having an impact on its bottom line. It’s expected to yield a total net income of $6.7bn for 2021, up from $3.6bn in 2019. Based on these estimates, the stock is trading at a forward P/E of less than 8. I think that’s far too cheap, considering its potential. 

Of course, these are just projections at this stage. Commodity prices can be incredibly volatile. They can rise and fall dramatically over the space of a few weeks. As such, there’s no guarantee the company will hit this earnings target for the year. What’s more, the cost of producing commodities can increase in line with prices as suppliers try to take advantage of a booming market. These are the two most significant risks Anglo faces right now.

Nevertheless, as a way to invest in the commodity boom, I think this is one of the best shares to buy now in the FTSE 100.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Trader on video call from his home office
Investing Articles

A 7.3% yield but down 22% from September, is it time for me to buy more of an overlooked FTSE gem?

This FTSE 100 commodities giant has been hit by concerns over Chinese growth and US tariffs. But are both overdone,…

Read more »

Middle-aged black male working at home desk
Investing Articles

Where’s the Lloyds share price heading in 2025? Here’s what the experts say

With the Lloyds share price already posting strong gains in 2025, Mark Hartley explores where it could go next --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 8% from its one-year high, is Unilever’s share price too cheap for me to pass up?

Heavyweight FTSE 100 conglomerate Unilever has seen its share price slide 8% in recent months. But does this mean it's…

Read more »

Tariffs and Global Economic Supply Chains
US Stock

Is it worth me buying S&P 500 stocks with the index close to record highs?

Jon Smith explains why he's more focused on active stock picking when it comes to the S&P 500 index right…

Read more »

Happy woman commuting on a train and checking her mobile phone while using headphones
Investing Articles

Warren Buffett’s stock is getting cheaper! Is this an opportunity for investors?

Shares of Warren Buffett’s Berkshire Hathaway have fallen in value since the legendary investor announced his retirement plans.

Read more »

Business man pointing at 'Sell' sign
Investing Articles

Here are the 3 most-sold FTSE 100 stocks at Hargreaves Lansdown in the past week

Many investors have been unloading shares in these well-known FTSE 100 companies over the last few days. Are any worth…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

This dividend stock has raised its payout for 49 years and now yields 5.5%!

A small-cap dividend stock with a cracking long-term dividend record and a healthy forecast yield -- what's not to like…

Read more »

Hydrogen testing at DLR Cologne
Investing Articles

Rolls-Royce shares have surged… this stock could be next

With Rolls-Royce shares up 1,000% over the past two-and-a-half years, investors are on the lookout for the next stock to…

Read more »