Although I’ve been investing for 35 years, I remember it was tough to save back in the 1980s. I had precious little money left over for investing, especially at university. Only in the 1990s did I start to invest in earnest, relying on the wisdom of Warren Buffett. Eventually, as my income and portfolio grew, I invested heavily in shares. But what if I started out again from scratch? What if I had only, say, £1,000 to risk today? Initially, I’d play safe by investing in shares in the blue-chip FTSE 100 index. For example, here are two FTSE 100 stocks that I don’t own, but would happily buy now. One share I consider to be almost boring, while the other is much racier and riskier.
1. ‘Boring’ FTSE 100 stock: Lloyds Banking Group
With over 30m customers and 65,000 employees, Lloyds Banking Group (LSE: LLOY) is one of the UK’s largest retail banks. It’s the #1 mortgage lender and a leading provider of credit to British businesses and individuals. Its major brands include Lloyds Bank, Halifax, Bank of Scotland, Birmingham Midshires, Scottish Widows, MBNA, and Black Horse. You’ll find a Lloyds outlet on most British high streets. On Thursday, the Lloyds share price closed at 53.75p, valuing this FTSE 100 firm at £38.2bn.
Why would I invest £500 of my theoretical £1,000 in Lloyds stock today? First, Lloyds is a FTSE 100 heavyweight with an easily understood business model. Second, Lloyds shares have done well over the past year, having recovered strongly from their 52-week low of 33.08p on 1 February 2021. Here’s how this stock has performed over five time periods: One week: +3.5% | One month: +7.7% | Six months: +13.6% | One year: +48.9% | Five years: -18.1%. As you can see, the stock has enjoyed positive momentum in 2021-22, but is down over five years.
Third, this FTSE 100 stock still looks cheap to me, even after recent price rises. Lloyds trades on a modest price-to-earnings ratio of 8.2 and a healthy earnings yield of 12.2%. The cash dividend yield of 2.3% a year is well below the FTSE 100’s 4%, but is rebounding after being cancelled in 2020. To me, these fundamentals look undemanding for a business poised to do well if the UK economy strengthened. But LLOY has been a long-term lemon to hold — and it could crumble again in another Covid-19 crisis.
2. Risky Footsie share: Polymetal International
If Lloyds is boring, then my second FTSE 100 share is anything but. My risky, racy stock is Polymetal International (LSE: POLY). This is hardly a conventional business. It’s an Anglo-Russian miner of gold and silver, registered in Jersey and with headquarters in Cyprus. Talk about international roots, huh? What attracts me to Polymetal is that its shares have taken a beating recently. Here’s how its shares have performed over five time periods: One week: -3.9% | One month: -18% | Six months: -32.8% | One year: -34.3% | Five years: -6.1%.
After these sustained price falls, this FTSE 100 stock looks too cheap to me today. On Thursday, POLY closed at 1,051.89p, valuing the miner at almost £5bn. Its shares trade on a multiple of just 6.1 times earnings and a bumper earnings yield of 16.4%. The dividend yield of 9.2% a year is one of the fattest in the FTSE 100. However, mining stocks are notoriously volatile. Also, gold and silver prices may decline in 2022, as they did last year. Even so, I still see Polymetal as a buy for me today!
