Why I’m Buying Barclays PLC and BP plc (but avoiding J Sainsbury plc)

Markets are falling — and for me, that means buying opportunities are improving. After all, who wants to buy at the top of the market?

Three cheap stocks I’ve had my eye on recently are Barclays (LSE: BARC) (NYSE: BCS.US), BP (LSE: BP) (NYSE: BP.US) and J Sainsbury (LSE: SBRY) — but only the first two currently meet my buy criteria, as I’ll explain.


BarBarclaysclays’ share price has fallen by 19% so far year, compared to a fall of 5% for Lloyds Banking Group and a gain of 5% for Royal Bank of Scotland Group.

However, I don’t believe Barclays’ results have justified this underperformance. Barclays currently trades on a 2014 prospective yield of 3.1% and a 2015 forecast P/E of 10.5, and the bank’s share price represents a 20% discount to Barclays’ net tangible asset value of 279p per share.

I rate Barclays as a buy.


bpEarlier this year, I commented that BP’s troubles in the US and Russia meant that the firm’s shares were not cheap enough to buy, relative to Royal Dutch Shell.

That situation has changed, and BP’s share price has now fallen by 13% so far this year, compared to just 1.3% for Shell. BP is now valued at just one times book value, compared to 1.25 times for Shell.

BP shares currently trade on a forecast P/E of 8.9 and offer a 5.8% prospective yield. Any improvement in the oil price or US legal situation could trigger a re-rating, and I believe the shares are now cheap enough to buy.


Sainsbury'sI recently came close to buying shares in Sainsbury. The supermarket currently trades at a 23% discount to its tangible book value, and the shares offer a P/E of just 10.5 times ten-year average earnings — or 8.4 times forecast earnings.

However, I’m increasingly concerned by Sainsbury’s uncertain brand identity — the firm appears to be trying to appeal to both value customers and premium customers, without committing to either.

Sainsbury’s profit margins don’t give it much room to cut prices, and I think there may be more bad news to come.

I plan to wait for the outcome of the firm’s strategic review in November, before deciding whether to invest.

More bargains ahead?

I suspect that the current market downturn may have further to run. However, it's rarely possible to call the bottom, and in my view BP and Barclays are now cheap enough to rate as solid long-term buys.

Of course, you may not agree -- and I have to admit that the Motley Fool's top analysts did not select any of these three companies for their latest wealth report, "The Motley Fool's 5 Shares To Retire On".

The companies the Fool's experts did choose are all high quality blue chip names and currently offer an average prospective yield of 4.1%, which is pretty tasty.

To find out the names of all four companies, download your copy today.

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Roland Head owns shares in Barclays and Royal Dutch Shell. 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.