Now that the FTSE 100 has fallen substantially from its highs, there are plenty of shares that are as cheap as they have been all year. So it’s time to go shopping for shares. If I were to buy shares right now, which would I buy? Here are my picks.
Royal Mail Group
Recently privatised postal company Royal Mail Group (LSE: RMG) has been on a downward trend since January of this year. It is now approaching its privatisation price of 330p. But I am just wondering whether the share price has nearly bottomed.
Check the fundamentals and we see a strong dividend play with growth prospects. Next year’s P/E ratio is 11.5, with a dividend yield of 5%, and this falls to 10.0, with a dividend yield of 5.2%.
For a company that is just adapting to the commercial world, which is likely to grow earnings over the coming years, and which has a high and rising dividend yield, this looks cheap. Although there is volatility, I suspect this a long-term investment that you should tuck away, whilst steadily harvesting those dividend cheques.
The strength of the housing recovery has surprised many. But if you analyse the statistics, all the ingredients are there: record low interest and mortgage rates, a growing economy with falling unemployment and rising employment, and a housing stock which has not kept pace with the rising population.
Thus, although in the medium term house price growth is likely to moderate, I see increasing house prices, alongside more house building, as a long-term trend which is just finding its stride. Thus businesses that have a stake in the housing recovery, such as Barratt Developments (LSE: BDEV), are worth betting on at the moment. Of the housebuilders, Barratt is my pick as I expect house price growth in London to cool, with growth spreading to the regions. Barratt, with developments across the country, would benefit from this.
The fundamentals are surprisingly cheap for what is now a growth company: a P/E ratio of 9.3 falling to 7.9, with a dividend yield of 3.6 rising to 4.5. This company is a strong buy.
Alongside these two blue chips, my final pick is a growth/small-cap play. Many growth companies have been hit hard this year, so I guess it would be brave of me to pick a small cap. Yet falling share prices also means that there are many bargains at the moment.
One particular bargain I’ve spotted is a company that is growing rapidly, yet whose shares are currently selling at bargain-basement prices. The company is called Plus500 (LSE: PLUS).
This company runs a trading platform where you can trade currencies, shares, commodities and CFDs (basically derivatives). This trading platform is available in many countries around the world. It has proved immensely popular, as the earnings per share progression shows:
2011: 9.65p 2012: 10.46p, 2013: 28.50p, 2014: 53.97p, 2015: 59.86p
As is often the case with small caps, the shares are volatile, but have fallen a lot recently, and this may have created a buying opportunity. The 2014 P/E ratio is 8.1, with a dividend yield of 7.4%, and the 2015 P/E ratio is 7.3, with a dividend yield of 8.2%. If you can see beyond the short-term noise, this could prove to be a profitable long-term investment.
Prabhat Sakya owns shares in Barratt Developments and Plus500. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.