Why I’d forget the Deliveroo share price and buy these FTSE 100 shares instead

I’m not tempted to go dip-buying with the Deliveroo share price. I think these two FTSE 100 shares are much more attractive at current values.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

So the Deliveroo share price continues to fall. Dip-buyers have failed to emerge as concerns over its valuation and its labour policies persist. This is despite many analysts predicting that the online takeaway market will keep growing and the company’s move into the grocery segment might give profits a big lift.

Deliveroo’s share price now sits at a hefty discount to its IPO price of 390p last month. But I think more share price weakness could be around the corner. More strike action from Deliveroo drivers could happen over pay and conditions. Demand for its services could suffer as Covid-19 lockdown rules are eased and people go out to their local restaurants.

Here are two FTSE 100 shares I’d rather buy instead of Deliveroo today.

A tech share I prefer

There’s a forest of evidence out there suggesting that flexible working practices could well become the norm. It’s a scenario that means firms will likely need to invest heavily in their cybersecurity coverage. And this should lead to higher sales at IT shares like Avast (LSE: AVST).

This particular FTSE 100 share saw adjusted organic revenues soar almost 8% in 2020 as the number of customers — along with the amount spent per customer — increased. The growing number of cyberattacks also bolsters my bullish view of tech stocks like this. Federal Reserve chairman Jerome Powell says that cybercrime is now the biggest economic worry for the US central bank.

A stock price graph showing declines, possibly in FTSE 100

Before I get too carried away, though, it’s important to remember that the rise of homeworking on its current scale is a new phenomenon. As such there is no guarantee that employers will adopt flexible working practices to the sort of extent that many believe. This means that profits expectations for Avast ultimately disappoint. And this could cause its share price to slump.

A FTSE 100 firm with 5% dividend yields!

That said, I think Avast’s share price looks more attractive than the Deliveroo share price right now. The IT services giant trades on a not-unreasonable forward price-to-earnings (P/E) ratio of 20 times. I’d say that the BAE Systems (LSE: BA) share price looks more attractive than the UK food delivery share’s too. Today the FTSE 100 firm trades on a P/E ratio of just 12 times for 2021. And it carries a near-5% dividend yield.

Global politics seem to be becoming more and more unstable. In recent weeks, North Korea has engaged in fresh rocket testing, while Russia’s military has begun massing on Ukraine’s border. These are just a couple of huge security worries on the minds of major Western powers. And so it’s likely that demand for BAE Systems’ products in the UK and US (as well as further afield) will continue to grow.

A word of warning about the BAE Systems share price, though. As the boffins at Exane say, defence companies may fall out of favour with European funds. This is because of environmental, social and governance (or ESG) requirements which could see the arms giants shunned like tobacco stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Avast Plc. 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.

More on Investing Articles

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

With an 8% dividend yield, I think this undervalued FTSE stock is a no-brainer buy

With an impressive yield and good track record of payments, Mark David Hartley is considering adding this promising FTSE share…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,500 in savings? Here’s how I’d try to turn that into £1,809 a month of passive income

Investing a relatively small amount into high-yielding stocks and reinvesting the dividends paid can generate significant passive income over time.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Dividend star Legal & General’s share price is still marked down, so should I buy more?

Legal & General’s share price looks very undervalued against its peers. But it pays an 8%+ dividend yield, and has…

Read more »

Investing Articles

Dividend shares: 1 FTSE 100 stock to consider buying for chunky shareholder income

This company’s ‘clean’ dividend record looks attractive to me and I’d consider buying some of the shares to hold long…

Read more »

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »