The FTSE 350 has been weighed down for some time amid concerns about the impact of Brexit. But I can even take it further back. Some UK banking stocks haven’t been popular since the financial crash.
Over the past year, the FTSE 100 is actually up 4%, but it had a low starting point and it’s been held up by a surging resource sector. Meanwhile, the FTSE 250 is down 17% over 12 months.
However, I see these indices as great places to invest. Valuations are low, and it’s important to remember that the performance of UK-listed stocks doesn’t reflect the health of the UK economy. For example, 70% of FTSE 100 revenues come from overseas.
So here are three stocks I’m looking to buy before the market recovers.
Rolls-Royce
Morgan Stanley recently said Rolls-Royce (LSE:RR) was the clearest example of mispricing in its coverage. The company’s share price is down 68% over the past three years as the pandemic really hit Rolls hard, with its civil aviation income tanking.
But things are looking up. Civil aviation flying hours are nearly at pre-pandemic levels, translating into higher ongoing revenues for Rolls-Royce. Engine orders are also up with airlines once again investing in new aircraft.
In fact, Rolls-Royce’s CEO recently said it has one of the strongest order books ever. This is also reflected in the company’s defence sector — Rolls’s second largest segment. Business is being buoyed by higher global defence spending as geopolitical tensions rise and Russia’s war in Ukraine rages on.
However, managing £5.5bn of debt is a big concern here.
Barclays
Barclays (LSE:BARC) is the cheapest FTSE 100 bank using the price-to-earnings ratio (4.4). Despite this, its performance has been solid. Notably, it earns a third of its revenues in dollars, which is a positive with the pound falling in value.
The bank achieved record profits in 2021 with the lender saying pre-tax profits hit £8.4bn for the year, above analyst expectations, and nearly triple the £3.1bn of a year earlier. Total income rose 10% in the first quarter of 2022, reaching £6.5bn.
Higher interest rates should also help. Margins will increase as Barclays can earn even more interest on the money it leaves with the Bank of England.
Yes, the predicted economic downturn isn’t good for banks. Recessions mean bad debts. But in the long run, when the economic gloom disappears, this bank’s share price will soar.
Vistry Group
Vistry (LSE:VTY) is one of my top housebuilder stocks. The share price has fallen along with other developers, amid concerns about the cost of recladding thousands of homes, the impact of interest rate rises, and a cost-of-living crisis.
But I’m bullish on Vistry and there are two main reasons for this.
Despite the less than optimal conditions at the moment, housebuilders are still performing well. Vistry recently said it expects pre-tax profit to be at the top end of market forecasts of £417m. That’s far above the £319m achieved last year, and way above pre-pandemic levels. Even margins are ahead of target.
And in the long run, demand will continue to exceed supply as successive governments have failed to address housing issues in the UK.
For me, now looks like a great time to buy developer stocks, and Vistry is among my favourites.