My five best investment ideas
Filed under: Investing
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Barclays (LSE: BARC)
I think we can recognise the pattern now. Every time the eurozone crisis hits the headlines, the banks get trashed.
Barclays has suffered of late, but it is still a hugely profitable operation. In particular, unlike Lloyds Banking Group (LSE: LLOY) or Royal Bank of Scotland (LSE: RBS), its empire extends well beyond high-street banking. It is a world leader in credit cards, and it has a 20% stake in fund management company BlackRock (NYSE:BLK).
But I think the ace in the pack is Barclays' investment banking arm. Barclays Capital acquired the remnants of Lehman Brothers in 2008 for a price well below book value. Investment banking now makes up half of the firm's profits, and it is poised to do even better once the worst of the crisis is over.
Of all the UK banks, Barclays is the best investment opportunity for me. A quick check of the numbers confirms my view. At the current price of 181p, the company is on a price-to-earnings (P/E) ratio of under 5, with a dividend yield of 3%. This is a strong buy.
Other shares that have taken a battering as the eurozone crisis has played out are resources companies. They now look substantially oversold, leaving bargains aplenty.
Which to go for? Well, I could have plumped for a BP or a Shell, and certainly both look great value at the moment, but my pick is oil equipment and services business Petrofac.
This company has had an incredible run, and is one of the great growth stories of the resources sector. After dipping down in the depths of last year's eurozone ructions, the shares have been climbing and climbing.
Many, myself included, would have felt that they had missed the boat with Petrofac, and would have turned their attention to other businesses. But the share price has fallen back from its highs, leaving investors with another opportunity to get on board.
The forward P/E ratio of 13 and the dividend yield of 2.5% may not seem that attractive, but this is a growth rather than a value play. In 2010 the chief executive set the lofty target of a doubling of profits in five years -- so far Petrofac is on track to do it. This is a growth play that delivers.
Insurance companies are very much out of favour at the moment but, eventually, this will change. When it does, holders of companies such as Royal & Sun Alliance will be sitting pretty.
What is particularly mouth-watering at the moment is this firm's yield. At the current price of 100p, RSA is yielding 9%, and it is on a P/E ratio of just 7.
A fellow Fool has recently sung the praises of this company, and I agree with him. High-yielding RSA is a stonking buy at the moment.
I have previously considered India overvalued. I think I was right, as the Indian stock market has been doing very poorly in recent years.
But, finally, I think it is now in buying range. Indian shares are now on a trailing P/E ratio of 16. This may not seem cheap, but until recently the P/E ratio was in the 20s.
Why is there such a premium for investing in India? Because this country, to me, looks much like China did a decade ago. India has many more years of rapid growth ahead of it. Plus India has superior demographics, with a population that is growing considerably faster than that of China, and a huge middle-class that is just starting to spend.
What's more, not only has the stock market fallen, but the Indian rupee has been tumbling, falling around 20% in a year. This makes Indian shares even cheaper. So investors who buy in now can benefit from this financial double-whammy.
I have long espoused investing in this, the cheapest of the BRICs. The Russian stock market stands on a P/E ratio of just 5. That is just ridiculously cheap. As Russia is heavily weighted to resource stocks, the market has been knocked hard by the troubles in the eurozone. But this has created a buying opportunity.
What's more, just as with India, we get the financial double-whammy -- the current crisis has caused both the Russian market to crash, and the rouble to lose value. So here is a great opportunity to buy into a BRIC at rock-bottom prices.
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