A lot of FTSE 100 shares look like great value to me right now. So what are my top three sectors, and which is my best value pick in each one?
For the first part, I’d say the banking, home construction and insurance sectors feature the best value stocks right now.
But my individual favourite in each one is a harder choice.
Best bank
I’m torn between Lloyds Banking Group and Barclays (LSE: BARC) here. But I think Barclays just edges it.
Both have had a poor five years and show low price-to-earnings (P/E) ratios. Barclays is easily the lower, at just 4.8, with Lloyds on 6.
Lloyds has a 5.9% dividend yield, compared to 5.1% at Barclays. But that’s just a one-year snapshot.
Barclays’ risk profile helps me split the two. I think it’s mostly down to its US banking arm. We’ve seen some banks fail there, and others are under stress.
I just don’t think Barclays faces the same risk as its poorly-regulated US peers. We could be in for a fair bit more pain for the banking sector, and Barclays could fall further.
But I just see its UK-regulated balance sheet as attractively strong.
Best housebuilder
My top FTSE 100 housebuilder is a clearer choice, Taylor Wimpey (LSE: TW.)
The shares are up from their summer lows, but I reckon they still offer great value. The P/E is modest, at about 11.5. But coupled with an 8.8% dividend forecast, what’s not to like?
Well, actually, there’s one big thing not to like, and that’s high mortgage rates. Lloyds, the UK’s biggest mortgage lender, has had to set aside more than £600m so far this year in bad debt provisions.
And high rates could be with us for more years than we’d hoped. I just can’t see us getting back to pre-inflation levels any time soon.
Still, I buy stocks for the long term, and I see a cash cow for at least the next 20 years here.
Oh, and I might pick Taylor Wimpey, but I’d be happy with any from the sector.
Best insurer
The insurance sector makes for another tricky choice. I see some great buys, but I’ll stick with the one I already bought, Aviva (LSE: AV.)
It’s not just the 7.8% forecast dividend yield, though that’s a big help. And earnings should cover the cash well enough.
I see a fair bit of pressure on insurance firms, for tight cost control to make them slimmer and fitter.
Aviva has been through that, though it could take a couple more years before we know what it’s really made of.
Those few years don’t exactly look like being extra bright for finance-related companies. So there might well be chances to buy the shares more cheaply in the future.
But strong earnings growth forecasts make Aviva my buy of the sector. They’d drop the P/E to 8.6 by 2025 if they’re right.
