Traditionally, August isn’t a great month for the UK stock market, especially the FTSE 100. Lower volumes as bankers retreat to the beach can hit share prices. Yet for long-term investors, this weakness can create an opportunity to find shares to buy. If the market dips, those shares can be picked up cheaper.
If that happens these are five of the FTSE 100 shares I’d potentially want to add to my portfolio.
The FTSE 100 growth contenders
Just Eat Takeaway is under pressure from an activist investor. Cat Rock Capital has called on the food delivery group to explore strategic options, including divestments or a merger with a larger rival.
With its share price falling, I’m thinking now could be a good time to pick up the shares. Just Eat merged with Takaway.com to become one of the big players in a competitive industry. Competition is the main reason I think the share price could continue to suffer, but I still like it.
Croda, the often-overlooked chemicals company, recently revealed it expected annual profit to be well ahead of expectations. This kind of confidence is often good for the share price.
I think the end markets that Croda serves mean it should continue to do well in future. Its customers are typically in life sciences and personal care – both of which I think are growth industries.
The biggest potential downside I’m keeping an eye out for is the valuation. The quality of Croda hasn’t gone unnoticed by investors. It means the shares trade on a price-to-earnings ratio of 47.
The high-yielding shares to buy
Persimmon, the housebuilder, combines a very high yield of 8% with a pretty undemanding valuation. Its P/E is eight. This combination seems attractive to me. It has very high margins, for example in 2020 its operating margin was 23.5%. I like it despite the risk of the withdrawal of government support for the housing market and also the possibility interest rates may rise. That would reduce housing demand.
Legal & General is another share combining value and a high yield. It has also just announced really positive results as well. Turning to the results first, its operating profit jumped 14% from the first half of 2020 to £1.1bn, while pre-tax profit came in at £1.1bn, up from £290m the year before. That’s very good growth for a FTSE 100 company. All the more so with a P/E of only eight and a dividend yield over 7%. A weakening of the UK economy would be the main event that could drag down the shares.
Lastly, there’s BAE Systems. It’s a steady company with long contracts to provide defence products and services across the globe. Yes, it could be hit by any tightening of defence budgets as part of a post-Covid economic recovery. But I still have confidence in its future prospects.