I’m looking to go bargain hunting following recent turbulence on the UK stock market. And these FTSE 100 stocks have grabbed my attention with their ultra-low earnings multiples and market-beating dividend yields.
But which of these blue-chip shares would be better buys for a winning investment portfolio?
Barclays
Along with Lloyds and NatWest, shares in Barclays (LSE:BARC) trade on a rock-bottom price-to-earnings (P/E) ratio. City analysts expect earnings to grow 8% in 2023 but forecasts look in increasing danger as soaring interest rates squeeze the domestic economy.
The profits at banks are dependent on favourable economic conditions. But right now Barclays and its peers face a losing combination of slumping loan growth and soaring credit impairments. As one of the country’s big three mortgage lenders, the bank is especially vulnerable to Britain’s creaking home loans market.
Latest Bank of England data suggests a tsunami of impairments could be coming. Mortgage defaults have risen 30% in the past three months, a survey of lenders showed. Bank warnings that 1m households face a £500 monthly cost increase by 2026 is a worrying omen for high street operators.
Barclays shares trade on a forward P/E of 4.7 times. It’s a low rating that reflects the huge risks it faces, which also includes a backcloth of rising competition.
Major structural problems in the UK economy (like low productivity, labour shotages and trade restrictions) mean this cyclical share could struggle long beyond 2023 too.
Not even the company’s large 5.8% dividend yield is enough to tempt me to invest. Significant exposure to the US economy could help it to grow earnings over the next decade. But, on balance, I believe the risks are too high for me.
Vodafone Group
Telecoms giant Vodafone Group (LSE:VOD) is also on the back foot right now. Yet I believe now could be a good time to buy the business as its new chief executive, Margherita Della Vallegets, gets to grips with turning it around.
Arguably, the company’s biggest problem is how to turn around its ailing fortunes in Germany, its most important market. New laws there have stopped the bundling of cable TV packages with housing association rents, in turn causing its subscriber base to sink.
A large $33bn net debt pile is another issue for Vodafone. The cost of servicing it is huge, for one. It also means the business could have less financial firepower to invest for growth.
But Della Valle’s steps since starting in April suggests to me that its fortunes could be about to change.
As well as completing its merger with Three in the UK, the new chief exec has plans to simplify the company and get growth moving again. This includes focusing more investment on Vodafone Business and slashing 11,000 roles to drastically cut costs.
Vodafone shares now trade on a forward P/E ratio of 9.8 times. They also pack a giant 9.6% dividend yield. I think now is a good time to open a position in the business. Profits here could rise strongly over the long term as the world becomes increasingly digitalised.
