Last week proved another test of nerve for traders of UK shares. The FTSE 100 fell 3% in the five days to Friday as fears over rising Covid-19 cases spiked again. Britain’s blue-chip index almost clattered through the critical support level of 6,000 points at one stage too. Market confidence is just about holding up, but a second share market crash remains a very real possibility.
Am I worried of a fresh market crash though? Not for a second. And I say that as an owner of UK shares. I’d actually argue that individuals should use the 2020 stock market crash as a reason to buy shares. And I’d use another plunge as a fresh opportunity to invest.
7.5% dividend yields!
Those investors who choose to run for cover are missing out on a brilliant opportunity to buy great companies at bargain-basement levels. The truly successful investors are the ones who use market crashes to buy low and then watch their shares steadily rise in value as economic conditions improve. It’s a tactic that often separates those who make a million from their stocks portfolios and those that, well, don’t.
With this in mind, I’d like to highlight some top-value UK shares on my watchlist right now, beginning with Babcock International Group. The profits outlook for the FTSE 100 firm remains bright as global defence spending goes from strength to strength. Yet the defence giant trades on a forward price-to-earnings (P/E) ratio of 7 times. It carries a monster 7.5% dividend yield for 2020 too.
Fellow defence contractors QinetiQ and BAE Systems also merit serious attention following the market crash. They might not carry mighty dividend yields like Babcock. But, at current prices, their earnings multiples sit at a very reasonable 15 times and 11 times respectively.
More top buys following the stock market crash
More stock market crashers I’ve got my eye on are FTSE 100 media giants ITV and WPP. These blue-chips face some serious near-term challenges as advertising revenues sink. I’m tipping them to bounce back strongly though once economic conditions improve. ITV is now a truly global broadcasting giant with its finger on the pulse of the digital media. Meanwhile, a comprehensive turnaround plan should allow WPP to ride the recovery when it sets in.
These two blue-chips trade on forward P/E ratios of around 10 times or below at current prices. And their dividend yields sit at chubby levels between 4% and 4.7%.
Many of the UK’s quoted gold-diggers also look like great value buys today. Okay, firms such as Centamin and Petropavlovsk have actually risen in value since the stock market crash, the consequence of rocketing investor demand for safe-haven gold. But I believe they still look too cheap to miss. Petropavlovsk trades on a forward P/E multiple of below 7 times. Centamin, meanwhile, trades on a higher ratio of 14 times, but sports a mighty dividend yield north of 5%.