My most successful investments are usually those where I do the research in advance and wait for the right time to buy. Right now, I’m looking for FTSE 100 shares I might want to buy in August.
Two companies have come up on my stock screens that I think deserve a closer look. One of these is a play on Asian growth. The other is a business that’s focused on the UK economy.
I’m looking abroad for opportunity
For simplicity, I prefer to own UK shares. But I don’t want to restrict my investments to companies that only operate in the UK.
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In my view, China, Southeast Asia, and perhaps Africa offer some of the most exciting opportunities for long-term economic growth. To gain exposure to these markets, I’m considering buying shares in FTSE 100 bank Standard Chartered (LSE: STAN).
Although it’s listed in London, StanChart operates mainly in Asia, Africa, and the Middle East. In 2019 — the last normal year before the pandemic — the bank made more than 80% of its profits in these markets.
In its home markets, StanChart is a high street name, just like Lloyds and RBS in the UK. It offers mortgages, car finance and business loans — as well as operating an investment bank.
The right time to buy this share?
Standard Chartered’s profits fell by 40% last year as the pandemic struck Asia first. But China and other Asian markets seem to be recovering more quickly. Broker forecasts suggest that Standard Chartered will report a pre-tax profit of $3.9bn this year. That’s only just below the $4.2bn reported by the bank in 2019.
The main risk that worries me is that Standard Chartered will continue to struggle with the impact of ultra-low interest rates. StanChart’s return on equity was a lowly 6.4% in 2019 and fell to 3% last year.
However, I think a cautious outlook is already priced into this stock, which trades at a discount of 50% to its book value. With a tempting yield of 3.8% — above the FTSE 100 average — I’d be happy to buy StanChart.
This 5% yield looks tempting
My second pick is a little different. Housebuilder Taylor Wimpey (LSE: TW) only operates in the UK. However, I think this business is a good way to get indirect exposure to the UK economy.
Taylor Wimpey’s latest trading update suggests that demand for new housing is strong. The company says its sales rate for the year to 18 April was slightly ahead of the same period last year, while cancellations were lower. Taylor Wimpey’s order book had risen to £2,808m on 18 April, up from £2,668m a year earlier.
Of course, the outlook for the UK housing market and the wider economy is still somewhat uncertain. Last year’s Stamp Duty holiday boosted demand for homes, but that’s now ended. The Help to Buy scheme has also been scaled back this year.
It’s too soon to say what the impact of these changes will be. But based on what I know today, I think Taylor Wimpey shares look reasonably priced.
The shares trade on less than 10 times earnings and offer a 2021 forecast yield of 5% that should be covered twice by earnings. Assuming that market conditions remain stable, I expect the dividend to increase in 2021.
