Is now a good time to buy FTSE 100 shares? 

I reckon there’s still plenty of value in the FTSE 100, despite its recent strong run, and I’m picking out my next bunch of buys.

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The FTSE 100 has been on a terrific run, putting on more than 1,200 points since early October to break through the 8,000 barrier for the first time.

It has climbed 6.91% over 12 months, and is up 5.17% so far this year alone. This is well below the standards set by US tech stocks during their golden run, but is impressive given the many strong headwinds out there.

Blue-chips rising

London’s index of top blue-chip stocks has shrugged off the war in Ukraine, the energy shock, Chinese lockdowns and rising inflation and interest rates. It has outpaced most global markets, for example, the US S&P 500 is still down more than 10% over one year, with the Nasdaq down 17.57%.

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I’ve been enjoying the FTSE 100’s recovery. In October, I decided it was too cheap to ignore and loaded up on undervalued stocks that have since risen smartly.

At the time, buying FTSE 100 stocks was a no-brainer. It was packed full of top stocks trading at less than 10 times earnings and yielding anything from 5% to 9%. But is it still a good time to buy FTSE 100 shares today?

While many shares are more expensive than they were a year ago, some have barely moved at all. Barclays shares are up just 0.69% in that time. Insurer Legal & General Group has ticked up 0.85% over the same period. Housebuilder Barratt Developments is crashed 20.47%. Vodafone is down 22.39%.

That’s the beauty of buying individual stocks rather than an index tracker. They behave differently, and offer investors like me different things at different times.

When share prices rise, yields automatically fall. That’s because they are calculated by dividing the dividend by the share price. Yet I can still spot some amazing yields on the FTSE 100.

Top dividend stocks going cheap

From the above list, Barclays is forecast to yield 5.7%, covered 3.7 times by earnings. L&G’s forward yield is 7.91%, with cover of 1.7 times. Barratt’s forward yield is 7.56%, nicely covered twice. Vodafone yields 9.1%, but with wafer thin cover of just 1.1 times.

These stocks are all dirt-cheap too, with Barclays trading at 5.7 times earnings, L&G valued at 7.52, Barratt at 5.4 times, and Vodafone at 10.2 times.

Just because a stock is cheap, does not make now a good time to buy. I could be walking into a value trap, and would need to examine the company’s accounts carefully. Here we would be able to see how sustainable its profits are, whether it generates enough cash to fund the dividends, and what threats it might face from new market entrants.

I reckon now could be a good time to buy Barclays, L&G, or Taylor Wimpey, but I’m wary of Vodafone. While some of my fellow Fool writers admire this Dividend Aristocrat, I like the prospect of generating capital growth as well. The Vodafone share price has gone nowhere for two decades.

I have no idea where the index will go from here (although I suspect it might tread water for a bit). I wouldn’t buy a tracker today, but I would buy individual FTSE 100 stocks.

Time to add Barclays, L&G and Taylor Wimpey to my wish list.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc and Vodafone Group Public. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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