LONDON -- I have been scared. I can admit that. These past 12 months have been a daunting time in the equity markets, and the uncertainty surrounding the eurozone and ongoing banking problems has kept me out of the markets.
Don't get me wrong -- I am a firm believer that there are always good buying opportunities out there if you look. But everything has been so up in the air, I was happier battening down the hatches and just holding on to what positions I had.
However, my attitude has started to change. The latest European summit has alleviated my fears a little, and economic indicators -- although still mixed -- are certainly more positive than has been the case. As such, I am ready to start dipping my toe again.
Here is what I am looking for:
- Good dividend yield to help compensate me for today's uncertain market.
- Established blue chips that are more likely to weather a storm.
- A good mix of strong fundamentals and share-price strength.
- Generally, value over the long term.
Essentially, my approach is similar to that of Neil Woodford, who runs two of the country's largest investment funds and has delivered a handsome 347% gain during the last 15 years. After reading this special free report about Woodford, I'm certainly hoping I can achieve something similar! (You too can read "8 Shares Held By Britain's Super Investor" by clicking here.)
Anyway, with all that in mind, these are the three names that top my list:
A classic defensive share, the Anglo-Swedish pharmaceutical major AstraZeneca has a good mix of strong fundamentals and room for profit growth. Its shares are currently priced at 2,927 pence, giving it a market capitalization of 37 billion pounds.
Straight away, the dividend yield for Astra is 6.9% -- higher than the wider sector, but not so large that it looks like it is overcompensating for something. Meanwhile, the broader market weakness has been keeping Astra's share price under pressure: The price-to-earnings (P/E) ratio of 7.9 looks very low. There is definite potential, therefore, for the share price to catch up over time if the underlying business does reasonably well.
In fact, Astra has made a number of announcements recently that bode well for the future. The company has announced that it will conserve several hundred million dollars by deferring its breakup of a longstanding partnership with Merck.
Perhaps more importantly, Astra has indicated this cash will be used to fund further acquisitions -- a clear indicator of being in a solid financial position. Most deals are expected to be for late-stage experimental treatments that usually offer a good risk-reward level.
Mark Twain once said "buy land, they're not making it anymore," and that sentiment is as good today as it was then. Property prices have slumped in the recession and have yet to recover to precrash levels.
I reckon British Land is well-placed to take advantage of any recovery. The property landlord owns a good mix of retail assets, housing projects, and office developments -- the latter of which have retained more of their value in the downturn. With a share price of 514 pence, the company has a market cap of 4.6 billion pounds.
British Land has been making a number of purchases in recent months and has signed several development agreements, including the construction of UBS's new headquarters. In effect, one could argue British Land is in a prime position to take advantage of cheap property prices -- and is just waiting for a sector recovery to see its shares rise.
That said, the European situation is still very uncertain, so I really see this selection as a long-term investment. In the meantime, a decent dividend yield of around 5.5% should keep me happy.
BP's shares, at 430 pence, seem low when you consider that the price was 600 pence when oil traded around today's $80 level before the financial crisis. Of course, this is a simplistic view, but the broader uncertainty in the world economy -- and its potential impact on demand for BP's products -- is no doubt keeping the oil price artificially low.
BP is a diversified business: It invests in just about every type of energy product, operates at all levels (from exploration to petrol pumps), and has projects all over the world. The firm appears well-positioned to take advantage of growth in developing economies while being diversified enough to weather short-term European shocks.
The oil spill disaster of 2010 thumped BP's reputation, and although you could argue it still needs time to recover, the group has the resources to get back on track. Meanwhile, the costs associated with the clean-up are all but accounted for, and with the exception of any unforeseen lawsuits, there's enough to cover all other expenses.
All told, I think the share price does not accurately represent the value of this company. Indeed, there's a good 4.5% dividend yield, as well as a P/E of 6.6 -- just under half that of its sector.
So there are three shares I'm hoping can get me back into this uncertain market -- albeit with no guarantees, of course! Please let me know your thoughts and ideas in the comments box below.
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