I see so many cheap shares on the FTSE 100 today, I’m spoiled for choice. But which 10 might make a good Stocks and Shares ISA, starting now?
We all have our own ideas of what makes good value, and I base mine on something ace investor Warren Buffett said:
It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Letter to Berkshire Hathaway shareholders, 1989
My criteria
So, what factors do I use to find wonderful FTSE 100 shares?
I want firms with vital goods or services, ones that we find it hard to live without.
I also want ones with good defensive positions, and protection against others trying to get in on their market.
The strength of the big banks is an example. In the financial crisis, challenger banks made inroads into the high street. Now we hear that Virgin Money is to close a third of its UK branches.
Top 10
Here are the 10 I think I’d pick today:
| Stock | Recent price | 1-year change | 5-year change | Forecast P/E | Forecast dividend |
| M&G | 204p | -4.1% | -9.5% | 11.8 | 10.2% |
| British American Tobacco | 2,669p | -23% | -33% | 7.4 | 9.2% |
| Aviva | 401p | +2.9% | -38% | 7.7 | 8.0% |
| Barclays | 165p | +4.6% | -12% | 5.1 | 4.7% |
| Lloyds Banking Group | 46p | +5.3% | -26% | 6.3 | 5.4% |
| National Grid | 1,048p | -4.8% | +24% | 15.1 | 5.5% |
| Tesco | 261p | +0.6% | -20% | 12.2 | 4.4% |
| GSK | 1,385p | -22% | -11% | 10.6 | 4.3% |
| Scottish Mortgage Investment Trust | 692p | -17% | +24% | n/a | 0.6% |
| Taylor Wimpey | 116p | -5.0% | -34% | 13.2 | 9.0% |
Good dividends
Looking at these now, one thing stands out to me. The average dividend yield of that lot comes to 6.1%.
If I could invest my full Stocks and Shares ISA limit every year for the next 25 years, at that rate I could end up with more than a million pounds. Wouldn’t that be nice?
But that’s enough dreaming.
Scottish Mortgage is the outlier here, with a small dividend. It holds a lot of US tech stocks, and it’s my one growth pick to add a bit of spice.
Valuation
One other thing strikes me. I didn’t make my choices based on price-to-earnings (P/E) ratios.
But it turns out that the average (excluding Scottish Mortgage, which is down for an earnings loss this year) comes out at 8.9.
The long-term average for FTSE 100 shares is around 14 to 15.
So that makes me think my set of stocks here looks cheap. And it’s not just individual stocks. No, I think this is a well diversified set, and that makes me see shares in general as good value now.
Less risk
It brings me to a key aim for me. Anyone heavily into banks in 2008, or house builders in 2021, would have soon been looking at a sea of red.
In fact, all of my stocks here carry their own risks, which I can’t go into now. So anyone who might think they like them should do their own research first. To reduce risk, I always want good diversification.
So I spread these choices across a range of sectors. I did double up on banks, but that’s my favourite sector in 2023.
