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Forget M&S: I think this FTSE 100 company could be a better bet

In the recent past, I have questioned whether now is a good opportunity to buy Marks and Spencer (LSE:MKS) shares. Press coverage of late has centered around the company’s relegation from the FTSE 100. This has left some potential investors wondering if they could pick up a bargain.

I think that buying M&S shares is still too big a risk. The large cut to its dividend, the high price it paid for a stake in the still-loss-making Ocado and the discounted rights issue offered to existing shareholders were red flags for me. The management at M&S will faced with continuing problems regarding its perception with the public. I’m not sure if people will see it as a place to do their weekly shop.

Similar companies, such as Morrisons, Sainsburys and Tesco, appear to be in a race to the bottom, and I expect growth in the industry to come from the likes of Lidl and Aldi. Simply put, there are too many mouths to feed, with each company competing for the same customers. For this reason, at the moment I would steer clear of this type of food retailer and focus on another industry entirely.

Instead, I would look at Legal & General Group (LSE: LGEN). The shares for the asset manager and insurance company seem to have been dampened by fears over Brexit, with a reduction in the stock price of approximately 8% in the past year. This appears to be in keeping with other financial sectors, like banks, which have also fallen out of favour lately. However, I think investors could be overreacting when it comes to Legal & General. 

Brexit Concerns

This drop in price leaves Legal & General with an attractive trailing P/E ratio of 7. In its half-yearly results, posted early in August, operating profit increased by 11% to £1bn. In the accompanying press release issued by the company, Nigel Wilson, the group chief executive, stated that the business is prepared for a range of Brexit outcomes. The investment management arm of the business received the relevant EU authorisation in 2018, and transferred all of its EU-regulated funds. The company will also look to capitalise on opportunities to support UK growth.

The dividend yield of over 7.5% makes the stock seem very attractive to me. Added to that, there is a track record of this dividend growing in recent years, which hopefully will continue to rise year-on-year. Of course, there is no guarantee of it growing further. 

I believe that the recent share price slump represents a good buying opportunity for value and dividend investors alike. This is a world away from where M&S is currently, with its cut to its dividend, uncertain future and drop in its revenue making it especially unappealing.

With a strong management structure, positive growth and a chunky dividend, Legal & General would appear to be a good company trading at a reasonable valuation. That’s enough to outweigh my concerns about Brexit.

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T Sligo has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.