I’m buying shares now before the stock market recovers. As the FTSE 100 nears 7,500 — a benchmark in recent years — it may seem like UK stocks are already well into their recovery.
But in reality, the index has been hauled upwards by soaring oil and mining stocks like Shell and BP that are up hugely over 12 months, and Anglo American that trades way above pre-pandemic levels.
The FTSE 250 is more reflective of the health of non-resource stocks, and that’s down 14% over 12 months.
Long story short, plenty of high-quality companies are now trading at attractive discounts. And that’s why I think now is the time for me to invest.
Buy low, sell high!
Buying low and selling high is pretty much the premise of investing. But I’m investing for the long run, and I’m always on the lookout for long-term buying opportunities.
Right now, there’s a cocktail of negative economic data. Inflation is reaching record highs, interest rates are rising, there’s a labour shortage, energy bills are putting pressure on households and business alike, and now we’ve got a new dose of political uncertainty.
And the uncertainty is fairly considerable. The two candidates, while both claiming to be followers of Thatcherism, have very different short-term plans for the UK.
Subsequently, investor sentiment is possibly at its lowest point since the financial crisis. And that’s why non-resource stocks are still down.
But eventually (and I’m confident of this) the UK’s issues will pass and the economy will be back on track. After all, its a trade-friendly state with a highly-skilled and fairly entrepreneurial workforce.
A UK focus
I’m almost exclusively focusing on UK stocks right now, and there are some pretty simple reasons for this.
Firstly, the FTSE is among the least popular indexes and as a result, valuations are low and dividend yields are high. It’s also worth remembering that the dividend yield is always relative to the price I pay for a stock, regardless of whether the share price goes up or down.
But the exchange rate is another factor. Because of the weakness of the pound and the strength of the dollar, I feel it almost makes no sense investing in US stocks at this moment. Any gains I make on US stocks could be wiped out by an appreciating pound.
Likewise, the weakness of the pound could help UK stocks. After all, firms in the FTSE 100 derive approximately 75% of their revenues from overseas, meaning profits will be inflated when converted back into pounds. Equally, if I had dollars right now, I’d be buying UK stocks and waiting for the dollar to depreciate.
It’s also worth considering that all UK stocks will look cheap to American investors right now. They’re sitting ducks for takeovers.
This is why I’m buying UK value stocks right now, including companies like Lloyds and Unilever, the latter of which could benefit from the weakness of the pound.