The FTSE 100 has slumped today following the news that the US Federal Reserve is considering tapering its quantitative easing programme sooner than analysts expected. This news has sent shockwaves through the market.
However, I think the market’s overreacting. Many companies fundamentals are stronger than ever before, which is far more important than the Fed’s actions, in my opinion.
As such, I’d use today’s declines to snap up shares in what I believe to be undervalued FTSE 100 companies. Here are three stocks I have my eye on.
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The first company is BP (LSE: BP). While some investors might not be interested in this oil & gas producer due to its poor ESG credentials, I think the shares are attractive as a recovery play.
As the price of oil has jumped, so have BP’s profits. This has allowed the firm to increase shareholder returns, pay down debt and free up capital for reinvestment.
Further, I think the price of oil will remain high as the global economy recovers. This implies the FTSE 100 stock will remain a cash cow for some time to come.
At the time of writing, the stock offers a dividend yield of nearly 7%, although this income shouldn’t be taken for granted. The payout could fall if BP has to pay out more to cover costs stemming from its high emissions levels.
Global leader
I believe one of the best FTSE 100 stocks to buy now is AstraZeneca (LSE: AZN). The global pharmaceutical giant is one of the world’s largest, and its size is a crucial advantage.
This means Astra can spend more on research and development to find new drugs. This is incredibly important for future growth.
In the past five years, the company’s spending strategy has really started to yield results. Its cancer drugs and vaccines are generating large and growing profits for the enterprise.
As management reinvests profits back into growth, I think it can keep the flywheel spinning. And as the demand for healthcare should only expand in the long run, I reckon Astra will always have a growing market for its products. That’s why I’d buy the FTSE 100 stock today. It also offers a yield of 2.4%.
Challenges the group may face include competition, which could eat away at profit margins. Political pressure to lower drug costs could also hurt sales growth.
Valued brand
Coca-Cola HBC (LSE: CCH) is Europe’s largest Coca-Cola bottler. This gives the company a substantial competitive advantage, and it’s been using this to expand into other markets.
Coke is one of the world’s most-consumed beverages, and it is marketed by the Coca-Cola group. This means Coca-Cola HBC has a relatively stable and defensive income. It doesn’t have to worry about marketing its main product to consumers.
This approach has plenty of benefits, although it also has drawbacks. The company only has limited control over its destiny, and if Coca-Cola decided to give it the cold shoulder, revenues could plummet. That’s probably the most considerable risk to growth in the long run.
Despite this risk, I’d buy the FTSE 100 stock today on weakness. Its growth potential and a 2.1% dividend yield look attractive to me.
