The Motley Fool

Have £1,000 to invest in FTSE 100 shares? Here’s what I’d do

We live in uncertain times – Brexit, trade tensions, and now the COVID-19 lockdown. As a result of these challenges, the Bank of England and other central banks have had to start printing money.

This didn’t just involve lowering interest rates to zero. Central banks also started quantitative easing (QE). This means the central banks buy bonds to inject new money into the financial system. Many experts think that it will lead to inflation.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

The question for us is where FTSE 100 investors should invest now.

Best buy as uncertainty looms

In this situation it is natural to flee from risk. But where to? Well, gold is a logical safe haven for investors during turbulent times. Inflation, negative real interest rates, economic and geoplitical risks all add up to this commodity’s appreciation. As I’ve mentioned above, all these factors are now present.

It is possible that the coronavirus crisis as well as the current monetary conditions will end soon. It is possible. But I doubt that the uncertainties will resolved quickly.

One significant disadvantage of holding physical gold is that it doesn’t pay any interest or dividends. The good news is that we can take advantage of the FTSE 100 and gold at the same time. 

FTSE 100 company’s shares

Polymetal International (LSE:POLY) is the second-largest gold producer in Russia, and also has operations in Kazakhstan. Polymetal has been steadily growing its revenue and profits for several years. The company’s shares are a really good alternative to gold since 84% of Polymetal’s revenues come from selling this precious metal. Therefore, the correlation between gold and Polymetal’s shares is really strong. 

Source: YCharts

The POLY share price is at record highs. Indeed, I’d prefer it to be lower but it still has growth potential. Its price-to-earnings (P/E) ratio of 16.64 is not that high given that earnings per share and revenue show stable growth. 

Year 2019 2018 2017 2016
Revenue (m) $2,246 $1,882 $1,815 $1,583
EPS $1.25 $1.00 $0.90 $0.90
Dividend per share $0.51 $0.47 $0.32 $0.37

Source: Polymetal International

The POLY share’s current dividend yield of 4.08% is very close to the FTSE 100’s average of 4.39%. But please don’t forget that many companies’ high dividends will probably not be sustainable during the crisis. Polymetal’s dividend per share has been rising since 2017. Year 2019 was particularly successful in terms of revenue generation and profits.

When I checked the company’s financials, I liked the fact that the operating cash flow rose by 36% between years 2018 and 2019. Polymetal’s net profit rose by exactly the same percentage during the period.  The company’s net debt also declined by 3% during the period. All these accounting fundamentals paint a really positive picture.

Conclusion

Betting on rising Polymetal International’s share prices is like betting that gold prices will rise. At the same time, it is a good opportunity to benefit from sustainable dividends. Even though Polymetal’s share price is near record highs, just like the price of gold, both have the potential to increase further.     

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

Anna Sokolidou has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.