3 Shares I Might Buy Now

Published in Investing on 6 July 2012

...include AstraZeneca (LSE: AZN), British Land (LSE: BLND) and BP (LSE: BP).

I have been scared. I can admit that. These past 12 months have been a daunting time in the equity markets, and the uncertainty surrounding the eurozone and ongoing banking problems has kept me out of the markets.

Don't get me wrong -- I am a firm believer that there are always good buying opportunities out there if you look. But everything has been so up in the air, I was happier battening down the hatches and just holding on to what positions I had.

However, my attitude has started to change. The latest European summit has alleviated my fears a little, and economic indicators -- although still mixed -- are certainly more positive than has been the case. As such, I am ready to start dipping my toe again.

Here is what I am looking for:

  • Good dividend yield, to help compensate me for today's uncertain market.
  • Established blue chips that are more likely to weather a storm.
  • A good mix of strong fundamentals and share-price strength.
  • Generally speaking, I am looking for value over the long term.

Essentially, my approach is quite similar to that of Neil Woodford, who runs two of the country's largest investment funds and has delivered a handsome 347% gain during the last 15 years. After reading this special free report about Mr Woodford, I'm certainly hoping I can achieve something similar! (You too can read "8 Shares Held By Britain's Super Investor" by clicking here.)

Anyway, with all that in mind, these are the three names that top my list:

AstraZeneca (2,927p/£37 billion)

A classic defensive share, the Anglo-Swedish pharmaceutical major AstraZeneca (LSE: AZN) has a good mix of strong fundamentals and room for profit growth.

Straight away, the dividend yield for Astra is 6.9% -- higher than the wider sector but not so large that it looks like it is overcompensating for something. Meanwhile, the broader market weakness has been keeping Astra's share price under pressure -- the price-to-earnings (P/E) ratio of 7.9 looks very low. There is definite potential, therefore, for the share price to catch up over time if the underlying business does reasonable well.

In fact, Astra has made a number of announcements recently that bode well for the future. The company has announced it's to conserve several hundred million dollars by deferring it break-up of a longstanding partnership with Merck (NYSE: MRK.US).

Perhaps more importantly, Astra has indicated this cash will be used to fund further acquisitions -- a clear indicator of being in a solid financial position. Most deals are expected to be for late-stage experimental treatments that usually offer a good risk/reward level.

British Land (514p/£4.6 billion)

Mark Twain once said "buy land, they're not making it any more", and that sentiment is as good today as it was then. Property prices have slumped in the recession and have yet to recover to pre-crash levels.

I reckon British Land (LSE: BLND) is well placed to take advantage of any recovery. The property landlord owns a good mix of retail assets, housing projects and office developments -- the latter of which have retained more of their value in the downturn.

British Land has been making a number of purchases in recent months and has signed a number of development agreements, including the construction of UBS's new headquarters. In effect, one could argue British Land is in a prime position to take advantage of cheap property prices -- and is just waiting for a sector recovery to see its shares rise.

That said, the European situation is still very uncertain, and so I really see this selection as a longer-term investment. In the meantime, a decent dividend yield of around 5.5% should keep me happy.

BP (430p/£82 billion)

BP's (LSE: BP) shares seem low when you consider the price was 600p when oil traded around today's $80 level before the financial crisis. Of course, this is a very simplistic view, but the broader uncertainty in the world economy -- and its potential impact on demand for BP's products -- is no doubt keep the oil price artificially low.

BP is a diversified business -- it invests in just about every type of energy product, operates at all levels (from exploration to petrol pumps) and has projects all over the world. The firm appears well placed to both take advantage of growth in developing economies, while being diversified enough to weather short-term European shocks.

The oil spill disaster of 2010 thumped BP's reputation, and although you could argue it still has some way to recover, the group has the resources to get back on track. Meanwhile, the costs associated with the clean-up are all but accounted for, and with the exception of any unforeseen lawsuits, there's enough to cover all other expenses.

All told, I think the share price does just not accurately represent the value of this company. Indeed, there's a good 4.5% dividend yield as well as a P/E of 6.6 -- just under half that of its sector.

What now?

So there we are -- three shares I'm hoping can get me back into this uncertain market, albeit with no guarantees of course! Please let me know your thoughts and ideas in the comments box below.

Further Motley Fool investment opportunities:

Share & subscribe

Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

JustWannaBuy 06 Jul 2012 , 4:16pm

You seem to be singing the praises of AZN yet this article recently would contradict that

http://www.fool.co.uk/news/investing/2012/07/02/3-takeovers-that-should-happen.aspx?source=isesitlnk0000001&mrr=1.00

?

pjegeorge 07 Jul 2012 , 6:17pm

Sensible advice. It seems that now is a very good time for someone who wants to invest part of their income. I agree with what Keynes said about it often requiring several years to know if you were right or wrong about an investment. Over the years of my investing, there have been times when there were no bargains and times when there were plenty. It strikes me that this is one of the latter and hence I'm back investing (and enjoying it).

giveusaquid 09 Jul 2012 , 12:17pm

justwannabuy

I've noticed the same and seen the same answers - the Fool isn't a single opinion and there are sometimes contradictory articles. It's all there to help provide a balanced view, jump in and enjoy!

Which article do you agree with?

giveusaquid 09 Jul 2012 , 12:19pm

justwannabuy

I've noticed the same and seen the responses before. There is no single 'Fool opinion' and you will sometimes find contradictory articles. All to help you get a more balanced view. Jump in and enjoy!

Which article do you agree with?

alarmbells 09 Jul 2012 , 12:27pm

The article would have benefitted from the criteria that were applied in each sector. For example why AZN not GSK? Why British Land and not Land Securities? Why BP not RSDB? Why not make it 4 to buy and include BAT or IMT?

Also, some comment on the operational and financial performance would have been valued. For example the relative ROE, ROCs, free cash flows, profit margins etc.

compound200 09 Jul 2012 , 12:27pm

flip a coin

AChembi 09 Jul 2012 , 12:46pm

I will be more happy to invest in these 3 companies :
Pan African Resources [LSE:PAF], Dragon Oil [LSE:DGO] and Tullow Oil [LSE:TLW]. Check their past 10 years record..a stunning achievement !

EGibbon 09 Jul 2012 , 2:26pm

Why buy ANZ now? You could have had it for less the £26 six weeks ago. Why ignore it when the price is low then jump in to buy after the price goes up again?

You're buying too high. There may be a bit more in it but it'll soon be back down again. Have a little patience and pick some up on the next significant downturn.

kloomes 09 Jul 2012 , 3:51pm

A few things for me to address here.

To answer the first question, two different people, two different opinions. As simple as that.

To respond to EGibbon, I do actually agree that over the next month AZN may be set to fall (although I am more inclined to think this now than when I wrote the piece). I know you fundamentalists out there may cringe if I talk about price levels, but personally I always like to look at short term indicators to get an idea of when to enter the investment that is solid on a fundamental basis. With AZN I would be looking for the share price to either make a clear break above say 2940, or if it does start to decline, probably look to buy nearer to the 28 mark in a few weeks. Obviously over the long term this might be marginal, but still worth looking at as a point of entry. Also, these are purely my personal opinion of price levels, please make up your own minds.

As for why didn’t I buy when it was 26, you may as well ask why I haven’t bought every stock when it has been its cheapest, I would love to but at the time you just don’t know that. Also in this case I really am just starting to look at entering the market again, I wasn’t when AZN was down at 26. I would warn that a lot of people put too much stock in the idea of ‘buy low, sell high’, whereas actually to get a stronger conviction of an investment, it is usually better to ‘buy high, sell higher’.

To answer some of the more ‘administrative’ questions, I chose three stocks just as a solid round number. These are by no means the limit of potential buys out there. It is also worth noting that these investments are aimed at getting a diversified portfolio – very important particularly in times of high risk. You should see therefore that I was covering sectors with little correlation and picking stocks I believed had a good mix of potential gains with solid fundamentals. That isn’t to say if I were to pick 20 stocks there would not be a few rivals to these firms included as well, these just seem to have the best risk/reward payoff for me.

As for alarmbells comments, simply put I wouldn’t be writing a piece out there that has 5,000 words on each recommendation; the fact is we need to be more succinct than that. I could happily have written thousands of words on each of these companies, and I encourage you all to look in much more detail yourselves at these potential investments, if you are inclined to, and draw your own conclusions. Here I was really highlighting some of the key points that I thought brought these picks to the front for me. In may ways P/E and dividends do encompass many other financial areas indirectly and are usually good representations of the broader picture for a firm, although of course as I have stated here, I think these P/E’s are not representative of the companies’ true value, and so shares are cheap.

Sorry for exceptionally long post, I hope this addresses your questions. Karl

F958B 09 Jul 2012 , 4:57pm

The author wrote:

"........I have been scared. I can admit that. These past 12 months have been a daunting time in the equity markets, and the uncertainty surrounding the eurozone and ongoing banking problems has kept me out of the markets........"

If an investor has the confidence that the companies in which they invest are solidly underpinned by fundamentals, and the shares are not overvalued either relative to the market or historically, then there is little to fear.
Good businesses will either shrug-off the economic problems, or will bounce back quickly. If an investor is holding such businesses and the shares aren't expensive to start with, then it is very likely that the share prices will bounce back too - with the dividend payouts continuing to flow while investors wait for the storm to pass.

brightncheerful 11 Jul 2012 , 1:09pm

Mark Twain once said "buy land, they're not making it any more", and that sentiment is as good today as it was then. Property prices have slumped in the recession and have yet to recover to pre-crash levels.

Mark Twain was right in theory but in practice not entirely correct: land can be reclaimed and need for planning permission can affect its value. As for property prices recovering to pre-crash levels, that's only likely to happen if the banks start throwing other people's money around as if there's no tomorrow. British Land is not what it was and no amount of hype from the company or unformed observation re prospects will get it there. That's not to say BL isn't an investment case, 5%+ isn't to be sneezed at, simply that expecting the sp to soar is wishful thinking.

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.