Investor appetite for FTSE 100 shares remains pretty weak as uncertainty concerning the economic rebound lingers on. It’s probable that the picture — and consequently the outlook for corporate profits — will remain unclear for some months too as the pandemic worsens in key regions. This lack of buying interest continues to weigh on other UK share indexes too, of course.
This cloudy panorama hasn’t discouraged me from continuing to buy British stocks though. In fact, my interest in UK shares is picking up as the 5 April deadline for ISA investors is fast approaching. Stocks and Shares ISA owners that fail to utilise the whole of their £20,000 annual investment allowance by then lose what they don’t use forever.
I’ve been on the hunt for cheap FTSE 100 shares to buy over the past week as a result. Should I add these blue chips to my ISA before 5 April?
Talking ’bout Tesco
On paper there’s a lot to like about Tesco. City analysts believe annual earnings will soar 55% this fiscal year, leaving it trading on a low forward price-to-earnings growth (PEG) ratio of 0.2. The supermarket packs a super 4.5% dividend yield too. But I’m not tempted by the Tesco share price today. It’s not only that Britain’s largest grocer face colossal and well-publicised competitive pressures. The equal pay battle between Asda and its store workers this week could eventually lead to the industry having to pay billions of pounds out to their employees. My fears on these fronts outweigh my optimism that Tesco’s excellent online proposition could deliver strong long-term profits growth.
A better cheap FTSE 100 share?
I’d rather increase my holdings in DS Smith, a cheap FTSE 100 share I already own in my ISA. Its 3.5% dividend yield might not be as impressive as Tesco’s. And its forward PEG ratio of 0.7, while very low, is also not as good as that of the supermarket. But I reckon this firm’s a much better bet for strong and sustained profits growth.
The packaging giant is doubling-down on the hot growth areas of sustainability and e-commerce to drive future earnings. I also like the company’s aggressive approach to acquisitions, even if M&As can throw up hidden horrors like unexpected costs and disappointing synergy benefits. City analysts think earnings here will rise 22% this fiscal year.
Powering up my ISA
I also believe the National Grid share price is extremely attractive for ISA investors like me. I think a forward price-to-earnings (P/E) ratio of 16 times represents pretty good value in these uncertain times. In my opinion companies with defensive operations like power supply are worth their weight in gold when the economy shakes.
Furthermore, at current prices this cheap FTSE 100 stock boasts a mighty 6% dividend yield. Analysts think National Grid’s earnings will rise 13% in the current financial year. Though remember that companies like this can face significant (and unexpected) costs that can blow profits estimates off course.
Royston Wild owns shares of DS Smith. The Motley Fool UK has recommended DS Smith and 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.