Taking the dive into investing can be one of the hardest and biggest decisions that you make in life. It is also quite daunting in many ways, as there are numerous different asset classes that can be utilised when investing. However, I still believe that the FTSE 100 contains many great value shares.
This new year can offer a fresh start, particularly for those who haven’t yet started investing. Stock-picking can potentially give investors a source of passive income (through dividends) and also deliver strong capital gains. The stock I outline in this article offers both in my opinion.
With the markets having bounced back hard from the March 2020 lows, it may appear to be the wrong time to start investing into equities. Even though the FTSE 250 is nearing pre-Covid levels and the US market has broken all-time highs, the FTSE 100 still appears very undervalued. I believe there is plenty of opportunity out there, even though there are also more risks as well.
Whilst it is always important for any investor to get diversification in their portfolio, I believe it is also important to get exposure to stock picking and individual equities too. Diversification can be achieved through buying Exchange Traded Funds (ETFs), which are baskets of shares that follow specific market indices. These are generally known to be a lower-risk option than investing in individual equities. However, I also believe many equities in the FTSE 100 offer low risk at current levels, one of these being BT Group (LSE:BT-A).
BT Group’s share price has been declining for many years. At its highest point back in 2000, BT shares surpassed £10 during the dot-com bubble; now they stand at just £1.35.
A lot of the FTSE 100 company’s poor performance can be attributed to the prolonged mismanagement of operations. BT has, for a long time, had a near monopoly on broadband across Britain, but did not use this to its advantage and other entrants have grown market share.
Instead of investing heavily into new fast fibre and onboarding customers for the long run, BT turned towards multi-billion pound TV sports deals and international partnerships, neither of which has arguably paid off to date.
The future opportunity
Now, with sentiment low, there is a turnaround opportunity in BT shares. The company still remains a cash cow delivering an operating profit of £3.5 billion for 2020, leaving BT with a lucrative P/E of just 5x. Whilst BT’s debt pile is sizable at £27 billion, the company has 4x coverage on the interest bill through its operating profit, so this debt is more than manageable.
With the world becoming increasingly integrated and demand for broadband services booming, I believe BT is one of the most promising FTSE 100 shares. BT’s recent move to plough £12 billion into rolling out fibre in the UK should put the company in good stead to reduce debt and improve cash flows. Whilst no dividend was paid at 2020 year end due to Covid-19 headwinds, I am confident dividends will return as cash generation improves going forward. As a result, BT is an investment I would consider if I was new to investing.
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Noah Riley holds 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.