I think the best FTSE 100 stocks to buy right now are in the financial sector. These investments aren’t going to be suitable for everyone. Financial companies can be challenging to understand.
There are a lot of moving parts at companies like Barclays and Lloyds. And as the financial crisis showed, there may even be assets on these banks’ balance sheets that management doesn’t understand. That could significantly increase the risk of investing in these businesses.
However, despite the risks involved in investing in companies with large complex balance sheets, I think the risk is currently more than offset by their valuations. For example, Barclays is currently trading at a discount of 50% to its book value. I think that’s far too cheap. It implies the business could be worth 100% more if it was broken up and sold piece by piece.
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As such, I’m comfortable with the level of risk involved in investing in these businesses compared to the potential rewards on offer.
FTSE 100 stocks to buy
While I believe Barclays looks cheap, it’s not on my list to buy right now. I think HSBC is a better option. The reason why is simple. The group has a much larger international presence, which may help it capitalise on the global economic recovery over the next few years.
The Asia-focused bank also has a strong presence in China and Hong Kong, two regions that have managed to escape the worst pandemic. The bank’s exposure to these fast-growing markets has helped it outperform shares in UK-focused peers over the past four years.
HSBC shares have produced a total annual return of 5.5% over the past five years. That’s compared to a return of just 0.5% for Barclays shares.
Of course, past performance should never be used to guide future returns. HSBC’s historical performance doesn’t guarantee the lender will outperform going forward.
What’s more, risks to the group’s growth are growing. Its support of the Chinese government has attracted the ire of American policymakers. If this results in limitations on the organisation’s operations in the United States, it could significantly impact its global brand image.
Still, despite these risks, I believe the lender has a bright long-term outlook. That’s why I’d buy the stock for my portfolio today.
Stocks to buy right now
Two other companies on my list of the best FTSE 100 stocks to buy right now are insurance group Aviva and online stockbroker Hargreaves Lansdown.
Aviva is in the middle of a transition. After a management change, the company is re-evaluating its long-term goals. Asset sales are on the cards as the group tries to refocus the business. These sales could reduce near-term growth. They may also cause the company to lose customers, which could be a significant headwind to future growth.
Nevertheless, I believe a leaner, more focused Aviva will produce better returns for shareholders. That’s why I’d buy the FTSE 100 company today.
Meanwhile, Hargreaves Lansdown has seen a boom in account openings over the past 12 months. This should translate into increased profitability in the long term. However, it’s by no means guaranteed as many beginner investors lose money. That might result in significant account churn, which wouldn’t be good for the business.
Still, I’d buy the FTSE 100 stock for its position in the market and track record of creating value for shareholders.
