Share prices continue plummeting across the London Stock Exchange on Monday. Even the FTSE 100 is heading lower and has plunged back below 7,000 points.
Why is the FTSE 100 falling?
The Footsie usually rises when the pound sinks. This is due to the huge proportion of company profits on the index that are generated in US dollars and euros. When sterling falls against these currencies, earnings receive an extra boost.
But the index is currently falling as traders price in the possibility of emergency rate hikes. The Bank of England could intervene in the coming days to help sterling and to lower yields on government bonds. The benchmark interest rate might also remain higher for longer if the measures announced in last week’s mini budget are introduced.
2 top stocks to buy
Higher rates put economic growth and, in turn, corporate earnings under extra pressure. However, the profits outlook for many FTSE 100 stocks remains pretty bright even as the prospect of emergency Bank action rises. Here are two I’d buy for my portfolio following falls today.
SSE
At current prices, SSE carries excellent all-round value. It trades on a forward price-to-earnings growth (PEG) ratio of 0.5. And its dividend yield sits at a healthy 5.5%.
The renewable energy producer isn’t immune to the impact of higher rates. The business has a whopping amount of net debt on its books due to the capital-intensive nature of its operations.
But this threat is more than reflected in that low PEG ratio. In fact, I think SSE’s a great way to ride out this challenging economic period given that power demand remains broadly stable even during the darkest times. This in turn gives the company supreme earnings visibility.
City analysts actually think earnings here will rise 28% in the current financial year (to March 2023). Not many other FTSE 100 stocks carry such bright earnings forecasts today.
B&M
Discount retailer B&M European Value Retail (LSE: BME) has slipped on acount of the falling pound. Weaker sterling results in higher costs. But I believe buying the business could be a shrewd idea as consumers feel the pinch.
According to KPMG, a quarter of Britons are now shopping at low-cost retailers like B&M. People are desperately trying to stretch their shopping budgets as far as possible. And the number could grow rapidly too as inflation heads northwards in the months ahead.
Like-for-like sales here fell 2.2% in the quarter to June. But this reflected strong comparatives of a year earlier as Covid-19 restrictions ended. And the company reported “improving trends” during the quarter. This could mark the beginning of a sharp upturn.
Today B&M trades on a forward price-to-earnings (P/E) ratio of 8.8 times. It also carries a 5% dividend yield, comfortably beating the FTSE 100 average of 4%.
