The FTSE 100 has reached a nine-month high after improving investor sentiment lifted the prices of a range of UK shares. Vaccine news has been the key catalyst, with investors apparently becoming increasingly upbeat about the prospect of a return to normality in 2021.
Despite the recent stock market rally, there are a number of large-cap shares that appear to offer good value for money. The index is still trading substantially below its all-time high. And with it having a solid track record of recovery, investing money in stocks today could prove to be a shrewd move.
FTSE 100 buying opportunities
The FTSE 100 is still trading around 15% lower than its all-time high. As such, many UK shares appear to offer wide margins of safety. They also have capital growth potential over the coming years. After all, the index has always recovered from its bear markets, but has always gone on to produce new record highs that contribute to its high single-digit annual total returns.
Therefore, companies that have recorded major share price falls this year, such as BP, IAG, Rolls-Royce and WPP, could offer scope for a long-term recovery. They appear to have the financial means to overcome challenging operating conditions, and have been able to strengthen their balance sheets since the start of the year. Moreover, they seem to have the right strategies to adapt their operations to cope with changing demand in the long run.
Certainly, BP faces difficulties in shifting its resources to a low-carbon economy. Similarly, WPP is likely to experience further challenges as the coronavirus pandemic continues, while Rolls-Royce and IAG are set to encounter more difficulties due to a tough outlook for the airline sector. But all four companies trade at relatively low prices and could be among those UK shares that gain the most from a FTSE 100 recovery.
UK shares with dividend-investing potential
The FTSE 100’s dividend yield of 3.7% is lower than it was just a few months ago as a result of many UK shares rising in price. However, it continues to be relatively attractive in a world where making a passive income from other assets is tough due to low interest rates.
Therefore, dividend-paying shares such as Vodafone, BAE and SSE could become increasingly popular over the coming years. They offer dividend yields higher than the wider index. They also appear to have solid financial performances that may provide greater resilience than many of their index peers.
BAE could outperform the FTSE 100 because of its dominant market position and investment in new markets. Meanwhile, Vodafone and SSE appear to be shifting their focus to new growth areas. This could make them attractive buying opportunities ahead of a likely stock market recovery for UK shares in the coming years.
