High interest rates are scaring people away from the UK stock market. But that surely means there are plenty of cheap stocks to buy at the moment, doesn’t it?
So here, I’m looking at three on my list of buy candidates. I’ve picked one value stock, one dividend stock, and one growth stock.
Value stock
I think of a value stock as one on a low price-to-earnings (P/E) ratio, and one I see as a likely long-term cash cow.
I think Barclays (LSE: BARC) might be the best buy in the whole FTSE 100. The share price has not been doing so well.
But the fall, coupled with upbeat forecasts, could give us a nice juicy option here. There’s no great earnings growth forecast. But analysts don’t see a lot of pain either.
It all puts the stock on a P/E of only five, which is about a third of the long-term Footsie average. There’s a predicted dividend yield of 4.7% too, but that’s just a bonus.
I do expect tough times in the next year or two, and we could see some hefty bad debt provisions. That could knock the dividend back. But the P/E valuation still looks way too low to me.
Dividend stock
For a dividend stock, I want a good yield and strong cover by earnings. But more than that, I want sound prospects for years of future dividend growth.
I’m spoilt for choice. So I’m going to hedge my bets and plump for City of London Investment Trust (LSE: CTY).
By holding the stock, I get a slice of Shell, BAE Systems, Unilever, HSBC Holdings… and a whole load more top long-term dividend stocks. Why choose, when I can have them all?
While interest rates are making our pips squeak, the trust is at the mercy of the FTSE 100. Pressure on earnings could dent profits, and hit the cash available to pay the dividend.
Oh, I nearly forgot, the investment trust offers a 5.3% dividend yield.
The key for me, though, is that City of London has raised its dividend for 56 years in a row. And it won’t want to stop doing that.
Growth stock
For growth, I’m tempted by Scottish Mortgage Investment Trust. It holds all the top US growth stocks, and again makes the choice easier.
But then I remember Darktrace (LSE: DARK). That’s the hyped-up cybersecurity darling that had growth investors so excited. The share price crashed hard, but it’s seen some gains in the past few months.
Forecasts show a profit for 2024. And in its Q3 update this year, the company reported a big rise in annual recurring revenue. Year on year, it was up 34%.
This is easily the most speculative of my three choices, with by far the most risk. And we won’t have FY results until September.
But the short-sellers from the hype days are gone now, and the early growth stock bubble has well and truly burst.
I wonder if we might be seeing the start of some sustainable share price growth now. More research is needed.
