The FTSE 100 falls back below 7,000 points! 2 top bargains I’d buy

The FTSE 100 has fallen below a key technical and psychological level again. So what? Here are two UK blue chip shares I’d buy following fresh falls.

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Share prices continue plummeting across the London Stock Exchange on Monday. Even the FTSE 100 is heading lower and has plunged back below 7,000 points.

Why is the FTSE 100 falling?

The Footsie usually rises when the pound sinks. This is due to the huge proportion of company profits on the index that are generated in US dollars and euros. When sterling falls against these currencies, earnings receive an extra boost.

But the index is currently falling as traders price in the possibility of emergency rate hikes. The Bank of England could intervene in the coming days to help sterling and to lower yields on government bonds. The benchmark interest rate might also remain higher for longer if the measures announced in last week’s mini budget are introduced.

2 top stocks to buy

Higher rates put economic growth and, in turn, corporate earnings under extra pressure. However, the profits outlook for many FTSE 100 stocks remains pretty bright even as the prospect of emergency Bank action rises. Here are two I’d buy for my portfolio following falls today.

SSE

At current prices, SSE carries excellent all-round value. It trades on a forward price-to-earnings growth (PEG) ratio of 0.5. And its dividend yield sits at a healthy 5.5%.

The renewable energy producer isn’t immune to the impact of higher rates. The business has a whopping amount of net debt on its books due to the capital-intensive nature of its operations.

But this threat is more than reflected in that low PEG ratio. In fact, I think SSE’s a great way to ride out this challenging economic period given that power demand remains broadly stable even during the darkest times. This in turn gives the company supreme earnings visibility.

City analysts actually think earnings here will rise 28% in the current financial year (to March 2023). Not many other FTSE 100 stocks carry such bright earnings forecasts today.

B&M

Discount retailer B&M European Value Retail (LSE: BME) has slipped on acount of the falling pound. Weaker sterling results in higher costs. But I believe buying the business could be a shrewd idea as consumers feel the pinch.

According to KPMG, a quarter of Britons are now shopping at low-cost retailers like B&M. People are desperately trying to stretch their shopping budgets as far as possible. And the number could grow rapidly too as inflation heads northwards in the months ahead.

Like-for-like sales here fell 2.2% in the quarter to June. But this reflected strong comparatives of a year earlier as Covid-19 restrictions ended. And the company reported “improving trends” during the quarter. This could mark the beginning of a sharp upturn.

Today B&M trades on a forward price-to-earnings (P/E) ratio of 8.8 times. It also carries a 5% dividend yield, comfortably beating the FTSE 100 average of 4%.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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