I’d snap up cheap FTSE 100 stocks before the UK’s premier index hits 8,000 points!

This Fool explains why FTSE 100 stocks trading at bargain levels may soon be out of reach as the UK’s leading index begins to edge upwards.

| More on:
Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Some FTSE 100 stocks are unmissable bargains right now due to recent economic volatility, in my opinion. However, as the index edges towards the 8,000 points mark, and investor sentiment is improving, I reckon now is the time to act before prices and valuations rise.

Improving sentiment or false dawn?

The FTSE 100 index is up 6% over a 12-month period. At this time last year, the index sat at 7,471p, and currently trades for 7,925p.

I’d have to go back to February 2023 for the last time it passed the all-time high of 8,000p. Even then, it stayed above this point for less than a day.

Data released recently shows that retail spending came in better than expected in January and February of this year. This helped allay fears of a sustained recession, and sparked murmurings of improved investor sentiment. Plus, when you consider that many economists reckon we’re set for interest rate cuts sooner rather than later, as well as inflation levels coming down, I’m not surprised to see the FTSE 100 edging upwards.

With this cocktail of tailwinds in the back of my mind, I can’t help wondering when stocks will begin to see their prices rising. Now could be the perfect time to capitalise and bolster my holdings, in my view.

One stock I’m eyeing up for when I next have some investable cash is British American Tobacco (LSE: BATS).

Passive income gem

British American Tobacco is one of the world’s largest businesses of its kind with an enviable reach of over 180 markets, and a portfolio of around 300 brands.

The shares have fallen 18% over a 12-month period from 2,885p at this time last year, to current levels of 2,364p.

I’d love to buy British American Tobacco shares for a few key reasons. Firstly, I’m looking to bolster my passive income stream, and it is a Dividend Aristocrat. The firm’s generous investor rewards policy is not to be sniffed at. At present, a dividend yield of over 9% is very enticing. Plus, the business generates cash hand over fist, which help supports this. However, I’m conscious dividends are never guaranteed.

Next, the shares look dirt-cheap to me on a price-to-earnings ratio of just six. For context, the FTSE 100 average is close to double this.

Finally, the firm’s track record, as well as wide profile and brand power, are enviable. All of these aspects have helped the business grow, providing solid returns over a long period. Plus, these traits help the business continue to remain one of the most attractive options to dividend seekers. However, I do understand past performance is not a guarantee of the future.

From a bearish view, the looming spectre of smoking bans linked to the ill-effects on health is a worry. However, it seems to me this threat has been around a while, and tobacco businesses still seem to be making money.

Furthermore, economic volatility could hurt sales figures, as consumers battle with rising food, energy, and other living costs. Performance and returns could be impacted by this.

Overall, I reckon British American Tobacco is a bargain right now. I do think it may see its share price increase as sentiment and the wider index experiences a potential boost in the coming months.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »