Have money waiting to be invested with a Stocks and Shares ISA? If current market trends are any indication, you might want to consider hunting value stocks to buy.
The reason? Investors are rotating out of tech shares as fears over AI profitability grow again. According to Kathleen Brooks, research director at XTB:
The move away from tech heavy AI names is allowing value stocks to shine… [with] top performing sectors in the US this week include industrials, real estate, consumer discretionary, energy and healthcare.
Plenty of shares in these sectors this side of the Pond are also rallying right now. Here are three I think deserve serious consideration in July.
On Target
Real estate investment trusts (REITs) must pay at least 90% of their rental profits out in dividends each year. As a result, they often have market-bashing dividend yields.
Take Target Healthcare REIT (LSE:THRL) for example. The forward yield here is 5.7%, beating the FTSE 100 average of 3.1%. But that’s not the only value metric that catches the eye. At 108p, it has a price-to-earnings (P/E) ratio of 8.5 times.
Target’s low valuation largely reflects worries over interest rates and inflation, and how these could affect REIT asset values. Yet, the long-term picture here remains exciting in my view, making recent price weakness a potential dip buying opportunity.
Target owns and operates care homes, and therefore stands to gain as the elderly population booms. The number of over-85s in the UK is tipped to double between now and 2049, to 3.6m people.
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Top dip buy?
Babcock International doesn’t offer a sky-high dividend yield. But based on expected earnings, it still offers brilliant value in my view.
The defence giant’s forward P/E ratio is 15 times. To put that in context, that’s far below those of major peers including BAE Systems (23 times) and Chemring (26 times). Its P/E-to-growth (PEG) is also under the value watermark of 1, at just 0.5.
Babcock shares have slumped recently as contract costs have soared, hitting earnings. I expect it to rebound strongly from current levels of 959.8p, though, as soaring European defence budgets supercharge sales. Organic revenue rose 8% in the last financial year.
Another great FTSE 100 share?
My final selection is Rio Tinto. At £71.50, its forward P/E ratio is 10.9 times and its PEG comes in at 0.3. These figures don’t (in my view) reflect the miner’s strong record of execution, nor its excellent earnings opportunities as the next ‘commodities supercycle’ gears up.
Rio produces iron ore, copper, aluminium, and lithium among other things. So it provides exposure to multiple megatrends including renewable energy, increasing urbanisation, and the artificial intelligence (AI) boom.
So what’s the catch? Mining companies can suffer earnings problems when production issues spring up, as they inevitably do. Yet I think this is more than baked into Rio’s cheap valuation.
One final thing: the FTSE firm’s dividend yield is a healthy 5.3%.
Should you invest £5,000 in Target Healthcare REIT Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Target Healthcare REIT Plc made the list?
Royston Wild owns shares in Target Healthcare REIT.
