3 reasons why I’m loving this FTSE 100 slump
The FTSE 100 closed down by more than 200 points at 6,704 on Thursday. It was the biggest one-day fall and the lowest close since the Brexit vote in 2016.
Yesterday’s fall wiped more than £50bn off the value of the index, but I’m not bothered about the hit to my own shares.
In fact, as someone who’s still working and saving for retirement, I’m pleased. Lower share prices mean I can buy more stocks for the same money. This means higher dividend yields and (hopefully) bigger capital gains over the coming years.
It’s also worth putting yesterday’s fall in context. Back in March, the FTSE fell to about 6,900 points. By June, it had bounced back to hit a high of nearly 7,900 point. Short-term sell-offs can be a great buying opportunity.
Good value for index trackers
The sell off we’ve seen over the last couple of months has left the big-cap index looking cheap to me. Yesterday’s closing figures show the FTSE 100 trading on a price/earnings ratio of 11.6, with a dividend yield of 4.4%.
At this level, I’d be very happy to add more money to a FTSE 100 tracker fund.
However, for investors willing to buy individual stocks, I think even better deals are on offer. Here are three of my top buys from the market slump.
A copper-bottomed choice
Chile-based copper miner Antofagasta (LSE: ANTO) has fallen by more than 20% this year. I think this sell-off has left the stock looking decent value for long-term buyers.
Family control and low debt levels have helped to protect shareholder value through previous boom and bust cycles. Although the firm’s profits are expected to fall by about 20% in 2018, a 27% increase is forecast for 2019.
The stock now trades on a 2019 forecast price/earnings ratio of 12.6 with an expected yield of 3.5%. I think now could be a good time to buy into this low-cost business, which has an operating profit margin of more than 35%.
The ultimate defensive buy?
The BAE Systems (LSE: BA) share price has fallen by 30% over the last six months. The defence giant’s shares now offer a forecast dividend yield of 5%. That’s a clear buying opportunity, in my opinion, because BAE hasn’t cut its dividend for 19 years.
Although Brexit could affect joint ventures with some European firms, the majority of the firm’s sales are made in the UK, USA and Middle East. Trading on just 10 times forecast earnings with that 5% yield, I rate BAE as a strong buy.
My top Brexit pick?
I recently bought more shares in budget airline easyJet (LSE: EZJ) for my portfolio. As I explained recently, I think fears of Brexit disruption are being exaggerated. According to the company, “both the EU and the UK” have said their aim is to maintain flight schedules, regardless of the Brexit outcome.
Although the company recently reported 2017/18 earnings at the top end of expectations, easyJet now trades on just 9.4 times 2018/19 forecast earnings and offers a 5.4% dividend yield. I rate the shares as a buy.
Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.
The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?
Roland Head owns shares of easyJet. 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.
///>
