As January begins, I want to try and figure out where is the best place to invest a spare £500 that I have. I don’t want transaction costs and brokerage fees to eat into my money too much, so I’m looking for no more than five top stocks to buy. With that in mind, here are the companies that I think offer me the best value right now.
Some ‘safe’ options
As we currently stand, no additional restrictions relating to Covid-19 have been implemented since Christmas day. Cases are still high at over 157,000 yesterday, so I’m concluding that further measures could still be put in place. Therefore, I think that I’m going to select one or two defensive stocks to buy.
If we do see tighter restrictions in coming weeks, holding some defensive stocks should help me against a broader FTSE 100 index wobble. Added to this, if we’re going to be spending more time at home over the next few months, then certain companies will see high demand. A couple of examples here include DIY hardware supplier Kingfisher and supermarket J Sainsbury.
The good thing about such companies is that even if we don’t go into lockdown again, I don’t see the shares tumbling. And both business models should perform well even if there are no restrictions this year. However, I should note that their performances would probably lag higher growth stocks. This is a potential risk if I add either to my portfolio.
Pre-empting a rebound in travel?
Another area that I’m thinking about for stocks in January is travel and tourism. The travel industry is one that I’d describe as high-risk. I only have to look at the share price performance of International Consolidated Airlines Group (IAG) to see this. Over one year, the shares are down 15%, but over two years the fall is 65%.
Despite the risks, I think that IAG and other peers such as easyJet could offer me a high reward. Buying in January (when sentiment is still uncertain) could be the right move. If I don’t and things do improve as we hit spring, then I could easily miss the boat as the share price could have firmly rallied by then. A release of pent-up travel demand for the summer could be the catalyst to spark a revival.
Top stocks for higher interest rates
Finally, I’m looking to buy some top banking stocks. I think that despite everything going on in the world, the major economies will see higher interest rates this year. This has already started in the UK, with an interest rate hike in December. Higher interest rates are good for banks as they can increase the net interest margin. This is the difference between the rate banks lends money at versus the interest they pay on deposits.
There are plenty of options for me to choose from here. I think NatWest Group and Standard Chartered are two standout banks right now. The risk with all banking stocks is that if the economy recovers slower than expected, customer spending and borrowing demand might not be that high.
Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Standard Chartered. 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.
