I am always on the lookout for the best stocks to buy for my portfolio now. I believe these FTSE stocks can boost my portfolio significantly and provide some nice returns as well as a passive income. Here’s how I go about identifying such stocks, as well as one pick I currently rate as one of the best stocks to buy now for my portfolio.
How I identify my FTSE picks
Below are the steps I take and some of the things I carefully consider when looking for shares to buy for my portfolio:
1. What does my chosen stock do? When picking any FTSE stocks I ensure I research and learn how a company makes money. What products or services do they offer? Where do they operate? How do they fare in their wider market of choice? I usually find this information is easy to locate. Due diligence is key in this part of my stock picking exercise.
2. Does my stock have a good track record? As a savvy investor, I do understand that a past record is no guarantee of future performance. I personally feel more comfortable investing into a company that has a favourable track record of performance and investor return. This is compared to other firms that have little history or an unfavourable track record.
3. Am I buying shares at a good price? I use a company’s price-to-earnings (P/E) ratio to determine whether or not a firm is trading at cheap, expected, or higher levels. A P/E ratio is calculated by dividing a company’s market value per share by its earnings per share. This is used to measure a company’s current share price relative to its per-share earnings. Using this, I can determine a firm’s relative value.
For example, if a firm had a ratio of 20, this means investors are willing to pay £20 for every £1 per earnings. This may seem expensive but not if the company is growing fast. I often compare this ratio to my chosen FTSE stock’s competitors. If my chosen firm has a higher P/E than other similar companies, there had better be a reason — which means I research further. If it has a lower P/E but is growing fast, that tells me this may be an investment for me.
4. What about the share price history? I often look at my chosen stock’s share price history to determine if I am buying shares at a good price based on historical activity. In recent times, the market crash linked to the pandemic caused many stocks to cheapen massively. Some have bounced back to pre-pandemic levels. Others are still lagging behind pre-pandemic levels.
5. Can my pick make me a passive income via a dividend? I want my stocks to make me money or a passive income. In this case, I look for high dividend yielding stocks. Dividends are distributions made by a company to its shareholders from its profits. They are generally issued in cash but sometimes in the form of more shares. Dividends can provide a steady and passive form of income. Many firms issue them at a regular intervals. Many traditional investors see dividend investing as a very popular strategy. The FTSE 100 average dividend yield is 3%. I look for stocks that have this level at the very least.
One of my best stocks to buy now
Warehousing and e-fulfilment provider Clipper Logistics (LSE:CLG) is one pick I currently like. The Covid-19 pandemic resulted in the closure of many retail stores that were not considered essential. Due to this, many retailers whose e-commerce offering was not up to scratch sought firms like Clipper who help manage this on behalf of firms.
Clipper specialises in the retail sector and counts ASOS, M&S, and H&M among its customer base. I believe it has been one of the best stocks to buy now since the market crash and remains so based on its growth and the demand it has experienced.
Clipper saw its share price crash to 149p per share at the height of the crash in March 2020. As I write, shares are trading for 799p per share, which is a 444% increase! In 2021 alone, its share price is up 38%.
Clipper has seen some excellent results recently due to organic growth supplemented by new contract wins. In its most recent full-year results announced last month, the FTSE AIM incumbent confirmed group revenue increased by 39.1% to £696.2m compared to last year. Profit after tax was up by 33.8% to £21.7m compared to last year. Basic earnings per share grew from 15.9p per share in 2020 to 21.3p this year. Cash generation was up 44%.
Due to such impressive performance, Clipper decided to reward investors with a final dividend of 7.1p per share. For 2021 as a whole, it paid out 11.1p per share, which is a 14.4% increase compared to 2020.
Risk and reward
All my best stocks to buy now have favourable characteristics but carry risks and Clipper is no different. It could be considered expensive at current levels. With a P/E ratio of close to 40, it could be overpriced right now. In addition to that, the fast growth and positive full-year results mean any negative news could result in a substantial share price drop.
Overall I take my time to pick my best stocks to buy now. I ensure I do my research and due diligence so I am not investing blindly or with limited information. At current levels, based on Clipper’s recent success, I would add shares to my portfolio but if shares cheapened I would definitely look to add further shares.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Clipper Logistics. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.