The stock market seems to be shaking off the uncertainty around the banking sector. But I’m looking for bargains while there are still stocks trading at discounts.
It’s almost impossible to tell what share prices will do on any given day. But there are three stocks I’m buying now because I doubt I’ll get a better opportunity for another 10 years.
Top of my list is Aviva (LSE:AV.B). But it’s the company’s preferred equity that’s catching my eye right now, rather than the common shares.
I think this is a relatively predictable investment. Unless something goes drastically wrong with the business, the stock is going to return 8.375p in dividends per share each year.
At a price of £1.18, that’s a 7% return. I’m looking to lock that in right now, because I think it offers a decent return with less risk than most stock market investments.
If interest rates rise faster than the market expects, then there’s a risk the share price will fall. But I’m not convinced that’s going to happen.
As a result, I’m looking to take the return on offer today, rather than guess at the future. If interest rate increases slow down, I might not get a better shot at this one.
I also like the look of FTSE 250 stock Diploma (LSE:DPLM). The company is growing rapidly and I’m not convinced I’ll see it at a lower price than it is right now in the next decade.
The stock doesn’t look cheap at today’s prices. The shares trade at a price-to-earnings (P/E) ratio of 35, meaning that decent returns depend on significant growth in the future.
I think this is likely to happen, though. Diploma aims to increase its revenue and profits by organic growth and through acquisitions.
In fact, the company closed an acquisition earlier this month. And with 700 further deals under consideration, I think the future looks bright here.
That’s why I’m not afraid of the high P/E ratio. I think there’s a long way to go before the growth subsides I expect the shares to be worth a lot more by then.
Bank of America
Lastly, I’ve been buying shares in US-listed Bank of America (NYSE:BAC). Warren Buffett seems to love the stock and I think it’s trading at a good price at the moment.
Put simply, I think that the bank is in decent shape. But the stock market is pricing it like a business in trouble, making it look like a bargain to me.
I’m not expecting another banking crisis in the next 10 years (though I’m not ruling one out). So I’m not counting on seeing the stock at these prices again.
The biggest risk for Bank of America shares right now, in my view, is the possibility of tighter regulation. That might impede the company’s profitability going forward.
I’m not convinced this is likely, though. Even if tighter regulations are coming, I think they would likey have a greater impact on smaller players, rather than Bank of America – and if I’m right, this is a rare buying opportunity.