Which are my favourite FTSE 100 shares, and what do I look for? I think there are so many that just look too cheap as we approach July, it’s not an easy choice. And as conditions change, there’s a fair chance I’d choose a different three next month.
There are no easy top-three choices for me. So instead, I’ll pick three that I see as solid buys right now, fitting different investing strategies.
A dividend share
I’ve always seen National Grid (LSE: NG) as a great company, especially for investors seeking reliable dividends.
However energy is generated, and whoever uses it, someone has to transport it. One possible downside is that the gas network could become a bit of a liability as hydrocarbon demand falls. But surely that will be balanced by growing electricity demand.
The National Grid share price had been rising, maybe as a result of investors seeking safer places for their cash in the light of the global economic outlook. But after peaking in May, it’s been on its way down again.
We’re still looking at a 13% rise over 12 months. But over five years, the shares are up only 4%. And the cash-generative company is now on a forecast dividend yield of over 5%.
A growth share
I rate Rightmove (LSE: RMV) as an attractive growth candidate right now. It helps that the share price has fallen 14% over the past 12 months.
It’s still up 30% in five years, with some volatility. Add a consistently high price-to-earnings (P/E) ratio, and we have typical growth characteristics.
Despite flashes in the pan from colourfully-named competitors, Rightmove continues to dominate the online real estate business. In 2021, Rightmove recorded revenue of £305m, up 5% from 2019 levels. Purplebricks, by contrast, saw £91m in revenue in its last full year.
A forecast P/E of 23 might look expensive, but that’s for a year that’s likely to be squeezed. And in the coming years, I can see it drifting down.
The share price weakness could continue into July and the months beyond, so there’s risk there. But it might mean better buying opportunities ahead.
A value share
I see lots of FTSE 100 shares on single-digit P/E ratios at the moment. My pick is Taylor Wimpey (LSE: TW), on a forecast P/E of only a little over six for 2022. And next year’s forecasts would drop it to under six, though I’m very cautious of 2023 predictions right now.
The whole sector is showing similar low valuations. I bought Persimmon shares some time ago, but I’d be happy buying any of the FTSE 100 housebuilders at the moment.
Soaring inflation and rising interest rates are generally bad news for the housing market. But, perhaps surprisingly, the big companies are still reporting strong demand. Maybe we’re seeing support from pent-up demand built during the pandemic.
Again, I think the biggest risk comes from potential share price weakness stretching into July and across the rest of the year. But the company thinks its own shares are cheap, and is on its second buyback programme of 2022.