I think some of the best shares to buy now are located in the financial sector. As the UK economy recovers from the pandemic, I think this sector will benefit substantially from increased economic activity. And with that in mind, here are three FTSE 100 bargains I would add to my portfolio today.
Best shares to buy now
The first company is the asset management and insurance group M&G (LSE: MNG).
This company effectively comprises the bulk of insurer Prudential‘s UK operation. This is predominantly an asset management business with a legacy insurance division.
The asset management business was hit hard last year when the pandemic struck. However, rising asset prices have helped the segment recently. As the UK economy recovers, I think this trend will continue.
One of the things I really like about this business is its valuation. The stock is currently dealing at a price-to-earnings (P/E) ratio of 9.4. I think that looks cheap compared to the market average of around 14.
This valuation is the primary reason I would add M&G to my portfolio FTSE 100 stocks. The main risks and challenges facing the group are the potential for another market sell-off, which could hit asset values and profits, and rising competition in the asset management sector.
Splitting up the business
I would also buy FTSE 100 insurance group Aviva (LSE: AV) for my FTSE 100 recovery stocks portfolio.
Over the past few years, this company has fallen out of favour with the market due to a lack of strategy. That is changing. The new management has been selling off divisions and refocusing the business on its core operations.
By freeing up capital from overseas operations, I think the company should be able to invest in its UK division just at the right time, when the economy is recovering from the pandemic. This growth potential is the main reason why I would buy the insurer for my portfolio.
The main risk facing the group is the potential for a significant increase in interest rates. As a life insurance company, this could substantially increase the firm’s liabilities, which could have a devastating impact on its bottom line.
FTSE 100 stock
The final company I would buy for my FTSE 100 recovery stocks portfolio is the banking giant Barclays (LSE: BARC).
The group’s investment bank helped it weather the worst of the crisis, and its retail bank should help drive growth as we advance. An improving economy should lead to higher loan demand and lower loan losses. This would allow Barclays to increase its profitability.
The bank has also benefited from lower than expected loan write-offs during the pandemic. Its balance sheet is stronger as a result, with the capital ratio coming in at 14.6% at the end of the first quarter. This was slightly above management’s targeted range.
Despite the bank’s improving outlook, it still faces some big challenges though. Another wave of coronavirus could inflict significant loan losses on the group. In addition, a slower than expected economic recovery could also hurt growth. To put it another way, Barclays’ outlook is far from clear.
Nevertheless, I would buy the company for my portfolio of FTSE 100 financial recovery stocks right now.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Barclays. The Motley Fool UK has recommended Prudential. 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.