The FTSE 100 index, which includes the UK’s top 100 publicly listed companies by market capitalisation, continues to inch up. On a day-to-day basis, the index changes may not appear significant at all. But when I look back, it has come a long way. From October 2020 to now, the index is up 21%. It has made steady gains every single month except one.
I think this is an ideal time to buy stocks. If stock markets were rising too fast, then I would risk buying too late, when there was not much upside left.
Growth or income?
When deciding how to invest, I like to take a top-down approach. This means I like to divide my investment into both growth and income stocks. The ratio is dependent on where we are in the economic cycle. Right now, we are due for a cyclical upturn. This means that companies should show improved performance.
At this point, I favour growth stocks. However, it is also essential to bear in mind that dividend payouts rise as companies’ demand increases. So if I buy stocks now that I think can increase their dividends later, my dividend yield can be quite high. There may be some wait, but for good reason.
So, with £1,000 to invest, I would put around £700 in growth stocks and £300 in income stocks. Of the £700 meant for growth investments, I would buy two stocks. Ideally, it is great to buy FTSE 100 stocks that have dipped, but are otherwise fundamentally sound.
3 stocks I’d invest in
One of them is the food delivery provider Just Eat Takeaway. Briefly, it is a mammoth company now, after completing its takeover of US-based Grubhub. It is loss-making, but I reckon that is because it is fast growing. I have written about it in some detail in another article today.
So I would rather focus on the other growth stock that I like, Ocado. Ocado was 2020’s star stock. As a grocery delivery provider, it saw a huge surge in demand last year as we were housebound. But its fortunes have dipped this year. In fact, today its share price is almost 4% below what it was a year ago.
To some extent, this has to do with a slowing down in its sales growth this year as life goes back to normal. But it also has to do with rotation out of stocks that were popular last year.
I think the case for food delivery providers stays strong. Consumers are expected to move to online shopping in increasing numbers, and Ocado is well placed to meet this demand.
The income stock I like is Royal Dutch Shell, whose yield was at one time at a huge 10.7%, pre-pandemic. It is presently at 3.3%. I get that oil companies’ long-term future faces a huge question mark as we move away from fossil fuels. But for the foreseeable future, it will do well as the economy expands. And with that, it is likely that its dividend will rise too, I reckon.