The Motley Fool

Stock market bargains: here’s where I’d invest £1,000 right now

Image source: Getty Images

It’s logical to assume that the higher the FTSE 100 index trades, the fewer stock market bargains exist within it. Fortunately for me, the FTSE 100 isn’t trading near any historical highs. It currently trades around 7,060, a far cry from the levels seen at the start of 2020 above 7,600 points. From this point of view, it gives me confidence that there are still companies out there that could rise in value.

Spotting a stock market bargain

With this top-down assumption that value does exist within the UK stock market, how do I find the bargains? I really have to think about what constitutes an undervalued share.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

For me, a good place to start is by looking at historical returns. If a company or sector has returned lower than average returns over the past year or so, I can look deeper. Some will have a valid reason for underperforming, likely due to the pandemic. Extending this further, the pandemic might have damaged a business so much that it’s actually worth staying away from.

This ties in to my next point. Stock market bargains need to have some positive outlook to warrant an investment. One way I can differentiate is by looking at the price-to-earnings ratio. If a share price has fallen more than the relative fall in earnings, this could show that it’s undervalued.

I need to be careful though, as one financial ratio isn’t everything I need to make a decision. But it does allow me to slim down my areas to look at.

Where I’d consider investing right now

If I had £1,000 to invest today, I’d look at stock market bargains from areas including oil, travel, tourism and banking that have been battered but could bounce back. Consider two specific examples from the oil industry.

Royal Dutch Shell and BP are two examples that I’d think of buying. Over the past year, their share prices have declined 7% and 11% respectively. Their P/E ratios aren’t high, with Shell at 9 and BP around 21. BP has a higher ratio here due to earnings-per-share of 15.02p, which is a larger proportion of the share price.

Fundamentally, I think the outlook is bright for the industry for the coming year and beyond. I’d expect to see strong demand from aviation, retail fuel garages and other areas as travel increases. I appreciate that the extent of this rebound isn’t known at the moment, but I think this is why both are stock market bargains. If the future was certain, there wouldn’t be much of an opportunity for me to jump on.

The other industries mentioned also contain companies that tick the boxes to consider them stock market bargains. But in order to avoid exposing myself to too much risk, I’d allocate £250 to four stocks. This is because I don’t know how long it’ll take before the share price reflects a fairer value. By having money in several stocks, it should allow me to reduce this risk.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

jonathansmith1 has 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.