Over the past six months, the FTSE 100 index is up 10%. This is a strong performance, and reflects the bounce-back in the UK economy from the pandemic. Within the index, there are plenty of stocks that have individual stories that put them among the best stocks to buy now. So if I had a £5,000 lump sum that I was looking to put to work, here’s what I’d do.
Details of the £5,000
First, £5,000 is enough cash to warrant splitting it up into smaller chunks. In fact, I’d probably look to invest in around 10 stocks, with £500 in each. Of course, if I particularly like one stock, I can increase this amount.
Even though I’m focusing on the best stocks to buy right now, I wouldn’t invest the full £5,000 today. This is because there might be further opportunities to jump on later this year. So I would look to invest between £3,000 and £4,000 now, and hold some in cash ready to deploy in the coming months.
Finally, I’d want to ensure I didn’t just invest this amount into the best stocks over the summer and then forget about further investing down the line. If I do have further cash coming at the end of the year or even next year, I can look to invest more at that point in time. This allows me to build a portfolio over time.
Finding the best stocks to buy now
For the amount that I’m happy to invest right now, I’d look to take advantage of stocks that have both underperformed and outperformed the index 10%.
For stocks that have outperformed, I’d be buying for a momentum play. This is a strategy that banks on the fact that the rally could continue given the positive news.
For example, Royal Mail and BT Group have both risen by more than 10% over the past six months. In fact, Royal Mail is the best performing stock in the index, up 68%. The company is seeing surging parcel delivery volumes, which is great. It’s also investing heavily in its operations, something that should support further growth as well. One risk here is that as we come out of lockdown, people will shop more in-store instead of ordering online and receiving items through the post.
On the flipside, I can find some of the best stocks to buy now by looking at undervalued companies. The FTSE 100 index may have risen by 10%, but the London Stock Exchange Group share price has actually fallen by 12%. A lot of this slump is down to the high costs and debt associated with it buying data provider Refinitiv. I do acknowledge this, but I think the long-term benefits that the move has will outweigh such expenses. As a result, I think the share is undervalued and would look to buy it.
Overall, I think there are plenty of options out there for me to invest portions of my £5,000 now. The best stocks to buy now change as time goes on, and so I want to remain active in this regard.