Last week was a landmark week for the London stock market, with the flagship FTSE 100 index of blue-chip shares hitting a new all-time high.

Despite that, some FTSE shares continue to look like a potential bargain to me.

How can that be?

The forest is not the same as the trees

Imagine the FTSE 100 index as being like 100 trees planted in a field.

The height of the forest canopy could be higher than ever before – but that does not mean that all the trees in the cluster are higher than they have ever been. Some could have shrunk, but that is obscured by taller trees when looking at the forest from a distance.

In the same way, despite the recent FTSE 100 high point, some members of the prestigious index have basically been treading water over the past year, while others have sunk significantly.

One beaten down FTSE share to consider

As an example of the latter category we have Associated British Foods (LSE: ABF).

Its share price has lost 19% in the past year alone as part of a 29% decline over a five-year period.

That means that the firm now offers a dividend yield of 3.3% and trades on a price-to-earnings ratio of just under 10.

But I reckon the company has strengths that that price does not suggest. It owns a host of well-known and long-established food brands such as Twinings and Ryvita. Such brands give the company pricing power, something that can help it maintain profit margins.

Despite its name, ABF is not just a food business. It also owns the discount clothes retailer Primark. Its success in the British Isles has set a template that ABF is hoping will translate into new regions as it continues expanding in a variety of international markets.

But given those strengths, why has the FTSE 100 share fallen so much?

A trading statement last week painted a picture of a business moving sideways, with revenues in the past sixteen weeks falling 2.2% (excluding exchange rate moves, they did grow – but only by 0.5%).

The UK and Ireland continue to have difficult market conditions. In the period under review, the agricultural division of ABF saw demand for compound feed continue to be soft both in China and the UK. I see a strong risk that will continue to be the case in the first half of this year.

Taking the long-term approach to investing

To me, though, those risks look like part of the ups and downs of running a diversified multinational business like ABF.

I take a long-term approach to investing. Over the long run, I think the value of ABF’s brands and business is not fully captured in the FTSE 100 company’s share price at the moment.

So I see it as a share that investors should consider right now.

Last week saw the flagship index of leading UK shares, the FTSE 100, hit a record high. But does an all-time high make it a good or bad time for a stock market beginner to start investing?

To answer that question, it is important to understand the wider context.

What an index is – and isn’t

An index contains some shares – in the case of the FTSE 100, it is the 100 London-listed shares with the biggest market capitalisation (and that also meet certain other requirements).

That means it represents a slice of the market (albeit a significant one in the case of the FTSE 100) not the whole thing.

This can be seen by comparing the contrasting performances of the FTSE 100 (up 13% over the past five years) with that of the FTSE 250 index for smaller capitalisation companies (down 5% in the same period).

On top of that, as companies with growing capitalisations move into the top index and members that shrink enough get relegated to the FTSE 250, there is an inbuilt bias.

That can mean the FTSE 100 hitting a record high does not necessarily mean that the 100 companies that were in it five years ago have performed as well on average as the currently composed index.

Why I buy individual shares

It may seem a bit confusing. But making money in the stock market is serious stuff!

You may have spotted another potential concern for those who invest in the FTSE 100. While the index can do well, some individual shares could be complete dogs and then – deservedly – get booted down to the FTSE 250.

But if an investor simply bought the better shares, not the dogs, he could likely outperform the FTSE 100 — by a significant margin.

I like buying individual shares not the index as I think it gives me a chance of outperforming said index. That is not an easy goal though.

That brings me back to the original question, whether now is a good time for a stock market novice to start buying shares.

The answer is – it depends. But on what?

For someone to start investing now (or at any time), what determines their likely success or failure is not what the FTSE 100 does. It is what shares they choose to buy and how much they pay for them.

Hunting for bargains even while the FTSE rides high

So even though the FTSE 100 has been on top form, I think some of the shares in it could be potential bargains for an investor to consider buying.

An example worth further research is M&G (LSE: MNG). The FTSE 100 asset manager is a well-known name with millions of customers. I see that as a strength, as it helps to set it apart from rivals.

The firm operates in a market that has high demand. I think it is likely to stay that way over the long run.

One risk I perceive, as an M&G shareholder myself, is that the company saw clients pull more funds out than they put in in the first half of last year. If that trend continues, profits could be hurt.

For now though, M&G remains around 15% below its 12-month high – and yields 9.7%.

A big enough SIPP can help someone live their retirement years in style – and potentially retire early into the bargain.

But how can an investor boost the value of a SIPP?

Here are three ways.

1.    Putting more money in, now

Retirement can seem far off for many people, but it creeps up fast.

The earlier someone puts money into their SIPP, the longer the timeframe on which they can make it work for them. As a believer in long-term investing, I think that can be a simple but powerful way to grow the value of a SIPP in future.

More money invested now will hopefully mean bigger rewards in future.

2.    Paying close attention to charges, fees, and commissions

Sometimes SIPP providers have what seem like a very attractive cost structure – but that can change over time.

If an investor is too busy, working and living life, they may not notice that fees and other costs are adding up.

While it may seem like a small number, 1% or 2% per year over the course of decades can eat into the value of a SIPP dramatically by the time it comes to drawing it down for retirement!

So I think it always makes sense for an investor to consider their choice of SIPP provider (and the specific SIPP structure) carefully and review that choice from time to time. After all, it is possible to transfer a SIPP just like it is possible to transfer an ISA.

3.    Buying the right shares

The two moves above are measurable and fairly obvious.

My third one, by contrast, involves some judgement. It is easy to say that a SIPP investor ought to buy the right shares – but what does that really mean in practice?

One thing I think some investors get wrong when it comes to pensions is paying too much attention to what is going on now and not enough to what may happen between now and when they draw their pension, potentially many decades from now.

So, for example, the 7.1% yield offered by Diversified Energy (LSE: DEC) certainly grabs my attention. If I could earn that sort of yield then compound it in my SIPP for two or three decades, I could potentially increase my pension’s value significantly. (£10,000 compounded at 7.1% annually for 30 years would grow to £78,286).

But the question is, could I earn that sort of yield for decades?

Diversified has come up with an innovative approach to the gas business, buying up tens of thousands of old wells that still have some resources left in them. It has a vast estate of gas wells.

But such an approach also brings risks.

One is servicing the substantial debt pile the company has incurred along the way. Another is the potential costs for cleaning up those old wells once they reach the end of their productive lives.

The Diversified yield still looks juicy, but the dividend has already been cut in the past several years and the long-term share price chart does not fill me with optimism, either.

That helps explain why I do not own Diversified shares in my SIPP and have no plans to buy them. Potential rewards matter – but so too do risks.

The prospect of becoming a stock market millionaire can seem exciting, but it need not be daunting. In fact, I think one can aim for a million simply by buying and holding a limited number of well-known and long-established blue-chip shares.

What it takes to go from zero to a million

If one seriously wants to become a stock market millionaire, it takes not just ambition but also a practical plan.

Putting in just a few quid and hoping to stumble on some miraculous once-in-a-generation share will not cut the mustard, I reckon.

Not only is a proper investment strategy required — so is capital. It takes money to make money.

That means that, while it is possible to start with zero, a disciplined regular saving plan is a helpful tool to provide money to invest.

Everyone’s financial situation is different and that will affect how much any one person can invest in their share-dealing account or Stocks and Shares ISA. But the short of it is, the more one puts in, the faster one can aim for a million.

Why doing less can earn more

Imagine an investor puts in £800 each month and was able to grow their portfolio value at a compounded value of 5% annually by investing in 50 leading shares.

Doing that to aim for a million, the investor would be opening the champagne after 38 years.

But imagine if they bought just the 7 or 8 best-performing of those 50 shares and achieved a compound annual growth rate of 10%. They would be a millionaire in 26 years. At 15%, it would take just a couple of decades.

How the top shares perform will vary over time. But the same principle always applies: the best-performing few shares in any group (say, the FTSE 100) over a given time period will outperform the rest.

That can speed things up, perhaps significantly, as in the path towards a million.

That is just simple maths. What is not so simple, alas, is knowing (or even guessing well) which shares will be top performers in any given timeframe.

Going for great, nor merely decent

Many investors know the difference between finding what feels like a really good opportunity and a merely decent one. Great ones can be rare: Warren Buffett pins much of his success on “about a dozen truly good decisions” over many decades.

It can therefore feel tempting to invest in merely decent opportunities. But Buffett’s strong performance comes from being patient and going for brilliant chances in a big way.

As an example, consider ExxonMobil (NYSE: XOM).

I expect demand for oil and gas to stay high. For decades people have been talking about use falling – and I do see that as a risk – but so far it has been resilient, as the global population grows.

Exxon is in prime position to benefit from this. It has a more focussed portfolio than some rivals, outstanding assets, and a proven business model over many decades.

In fact, not only has it proven its business over decades, the energy major has grown its dividend annually for decades.

The thing is, although I think it is a great business the share price does not strike me as cheap. So, for now, I am watching without buying.

One of the key benefits of a Stocks and Shares ISA is the wide selection of investment options that it allows. From gold and bonds to index funds and equities, investors can gain exposure to all elements of the global economy.

This is convenient from a diversification angle because different asset classes tend to move in different directions. When bonds go up, stocks often fall and when stocks fall, commodities often go up. This happens because investors tend to treat certain assets like safe havens during times of economic unrest.

By diversifying funds between asset classes, investors aim to reduce risk and improve growth opportunities. Some actively rebalance assets in a portfolio based on market movements – although this can be risky.

A mix of assets can add stability to a portfolio. It reduces the likelihood of losses from poor performance in any individual asset class. For beginners with a passive investment approach, diversification helps to protect against losses in a market downturn.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

An ISA asset balance strategy

Consider the following asset classes and how they can add diversity to an ISA.

Index tracker funds

These provide exposure to all the stocks in an entire index like the FTSE 100, S&P 500, or MSCI World. This is an easy way to gain exposure to a range of companies across different sectors and geographies. 

Government bonds

Allocating some of an ISA to government bonds can help balance out the volatility of equities. With fixed interest rates, bonds provide smaller but more reliable returns.

Commodity ETFs

Commodities like gold are often considered a hedge against inflation. They tend to hold their value when stocks slip. Investors can gain exposure in an ISA via commodity ETFs.

Stocks

When picking individual stocks, it’s good practice to add a few stocks from different industries and geographical regions to increase diversity. Beyond Europe and the US, emerging markets like Asia and Africa often have untapped opportunities.

Inspired diversity

Beginner investors looking for inspiration may want to consider Scottish Mortgage Investment Trust (LSE: SMT).

This popular Edinburgh-based investment trust aims to harness high-growth innovative companies across the globe. It focuses fairly heavily on US tech stocks like Nvidia, Tesla, and Shopify but also includes a decent amount of diversification. Its geographical reach includes Chinese companies like PDD Holdings, Meituan, and ByteDance, French luxury goods retailers Hermes and Kering, and in the UK, Ocado and Wise.

Around 65% of the portfolio focuses on the tech and consumer discretionary sectors, with 18% in industrials and the rest in healthcare, finance, and smaller industries. Notably, it has almost no investment in carbon-based energy, prioritising the transition to renewables.

Although the stock is up 36% over 12 months, it suffered harsh declines in the past. Currently, the price is 28% below its all-time high. 

With an aggressive focus on growth, it’s heavily exposed to sensitive industries that can be volatile when the economy wobbles. That puts it at risk of extended periods of losses.

Over the past 30 years, it’s grown at an annualised rate of 11.37%. 

Whether considering Scottish Mortgage as a stock pick or using its portfolio as a guideline, investors are likely to benefit from its diversified model. It’s a stock I plan to continue buying for years to come as part of my passive income retirement plan.

Not every FTSE 100 stock pick can be a winner. I hold around 20 blue-chips and two have suffered: mining giant Glencore (LSE: GLEN) and pharmaceuticals titan GSK (LSE: GSK).

Their shares are down 8% and 12%, respectively, over 12 months. Personally, I’m sitting on paper losses of 16% and 19%, despite picking up a few dividends and yes, it hurts.

While the declines are disappointing, I’m hanging on in the hope of a turnaround. So what are the chances?

Can the Glencore share price rebound?

As one of the world’s largest miners and traders, Glencore’s heavily exposed to the volatile prices of key resources like coal, copper, and zinc.

That was fine when China was posting double-digit GDP growth year after year, while gobbling up 60% of the global supply of metals and minerals. Those days are over and as one Beijing stimulus package after another underwhelms, we can’t assume they’ll come back.

Glencore also has to navigate the pivot towards renewable energy and a low-carbon future. Its substantial coal business remains highly profitable but is at odds with global decarbonisation goals.

President Donald Trump’s mooted tariffs are another concern. The Glencore share price jumped on Friday, along with the commodity sector generally, as Trump (for now at least) adopted a less strident stance. There will no doubt be further twists to come.

The shares look good value trading at 10.5 times earnings while its 2.6% yield may be topped up by one-off dividends in the spring.

The 15 analysts offering one-year share price forecasts have produced a median target of 493p. If correct, that’s a bumper increase of almost 30% from today. I’d hate to miss out if that happens. In a famously cyclical sector, I’d be daft to sell when the shares are down.

Long-term GSK investors can be forgiven for feeling grumpy. The stock’s down 18% on a decade ago. And although investors have received plenty of dividends in that time, they’d have hoped for more. Today’s 4.25% trailing yield’s solid but still below the 6% or so that investors used to expect.

GSK shares are down, but not out

Pouring money into R&D instead was supposed to boost the pipeline and share price. It’s not really happened yet. Spinning off consumer healthcare business Haleon didn’t add much shine to the mothership either.

I thought the GSK share price would rebound last year as it settled a US class action case over heartburn medication Zantac. The relief was short-lived. And with Trump targeting big pharma, investors have another worry.

GSK shares are cheap, trading at 8.8 times earnings, but there’s a lingering suspicion of a value trap here.

The 17 analysts offering one-year share price forecasts have produced a median target of 1,618p. If correct, that’s an increase of almost 19% from today. Combined with that yield, this would give me a total return of 23%. I can’t see it happening, but I’ll hang on just in case.

I could definitely see Glencore rallying hard from here. I think GSK will be a long, slow haul. I continue to hold both but I really should have bought Nvidia.

While the FTSE 100 has been making new all-time highs recently, there are still plenty of cheap UK shares around. Last week, I screened the UK market for stocks that are at least 15% off their 52-week highs and currently have price-to-earnings (P/E) ratios under 10. I got around 200 results!

Here, I’m going to highlight three shares that came up on my screen. I think these stocks could be worth considering as value plays in February.

A huge fall

Let’s start with JD Sports Fashion (LSE: JD.) because this stock has experienced a huge fall recently. Currently, it’s around 50% off its 52-week high.

Now, the company is experiencing some consumer demand challenges at present and these could persist in the months ahead. However, for patient long-term investors, I reckon there could be an opportunity here.

In the coming years, JD Sports Fashion is planning to roll out lots of slick new stores across the world in an effort to be a leading global retailer of athletic footwear and apparel. So, there’s potential for revenue and profit growth in the long run.

This stock currently trades on a forward-looking P/E ratio of just 6.3, so it looks dirt cheap. However, I’m using the earnings per share forecast for FY2026 (the year ending 31 January 2026) here and this could come down.

One person who clearly sees value though is CEO Regis Schultz – earlier this month, he bought £99k worth of stock.

Down but not out

Another stock that has tanked and looks cheap right now is insurer Prudential (LSE: PRU). Currently, it’s about 25% off its 52-week highs and trading on a P/E ratio of about eight.

The main problem for this stock has been China and its weak economy. Today, Prudential is heavily focused on Asia, and China represents a key part of its long-term growth strategy.

I expect economic conditions in China to pick up at some stage in the future. And when they do, Prudential’s earnings and share price should get a lift.

Of course, US/China trade wars are a risk now that Donald Trump is US President. These could hurt the company’s prospects.

On the plus side, Prudential has been buying back a ton of shares recently (it announced a $2m buyback last year). This move – which indicates that management sees the stock as cheap – should help to boost earnings over time.

A Trump play?

Speaking of Donald Trump, one UK stock that could potentially do well while he’s in power is Keller Group (LSE: KLR). It specialises in building foundation technology.

Over the next four years, the US is likely to see a huge amount of construction activity (data centres, semiconductor plants, infrastructure, etc.) as Trump aims to ‘make America great again’. Given that Keller has significant exposure to the US, it’s well placed to capitalise.

Like the other two stocks I’ve highlighted, this one is well off its 52-week highs (about 19%) and looks cheap. Currently, it trades on a P/E ratio of about 7.3 so it appears to offer a lot of value.

I will point out that Keller is a global company. So, weakness in other geographic regions is a risk.

Given the low valuation, however, I like the risk/reward setup. I reckon this stock can do well in the years ahead.

To date, the FTSE 100 — the index tracking the performance of the UK’s largest 100 stocks — has largely shrugged off the incoming president’s early policy announcements. However, that’s not to say we won’t see more movement as Donald Trump’s term unfolds, especially if the UK finds itself the target of American tariffs.

And with this in mind I decided to ask ChatGPT, considering its IQ is already higher than my own, which FTSE 100 stocks could benefit from Trump’s policies. The platform provided me with four answers, Ashtead Group, Sage Group, BAE Systems (LSE:BA), and Rolls-Royce (LSE:RR). Today I’m going to focus on the latter two.

Trump’s push on defence spending

ChatGPT selected BAE Systems and Rolls-Royce because they’re the two largest defence contractors in the UK. That’s important because Trump wants the US and its allies to spend more on defence. In fact, he’s called for NATO members to increase their defence spending to 5% of GDP. That’s more than doubling the current 2% target.

This demand has caused concern among European allies, with many considering it unrealistic given their economic constraints. But while Trump’s push is largely seen as a negotiating target, potentially aiming for a compromise around 3.5%, this would still represent a significant requirement for NATO members to increase defence spending. The ultimate winners here will likely be the defence contractors.

What’s more, UK-based contractors could prosper more than their European counterparts because they’re exempt from ITAR regulations. This exemption, effective since August 2024, allows for streamlined defence trade among AUKUS nations (Australia, UK, and US). UK companies in the Authorised User Community can now operate without US ITAR licenses for specified controlled articles and services. This should reduce administrative burdens and lead times.

Is Rolls-Royce a good investment?

Rolls-Royce is a quality business that has been revitalised in recent years. The company’s three main business units — civil aerospace, defence, and power systems — are all thriving and contribute to a very healthy earnings trajectory.

Interestingly the stock, despite its meteoric rise, is still trading at a discount to its American counterpart GE. While potentially resurgent inflation from Trump’s policy may have a negative impact on demand for air travel — Rolls earns a lot from service-related flying hours of its engines — it’s definitely a stock worthy of much consideration. I would consider buying more but my holding’s already substantial relative to my portfolio.

Is BAE Systems one as well?

The BAE share price is already elevated versus historical levels. And much of these gains happened at the start of Russia’s war in Ukraine. Rather than benefitting from demand for armour and ammunition, the company prospers when nations sign up to long-running defence programmes, like Tempest and AUKUS.

One risk is that it doesn’t trade with the normal British discount that we’ve come to expect — it trades with similar valuation multiples to its American counterparts. What’s more, the expected earnings growth rate isn’t as strong as Rolls-Royce. I’ve owned it, sold it too soon, and don’t expect to buy it in the near term.

Building a steady passive income from stocks isn’t just wishful thinking. Many ordinary people are achieving it, and they don’t need to be investment geniuses to succeed. I’m certainly not, but I’m doing okay.

Those starting afresh with a Stocks and Shares ISA may be surprised to discover how much passive income they generate if they really go for it. 

By my calculations, an investor could potentially earn a massive second income of £17,640 a year in just a decade if they consistently max out their annual £20,000 allowance.

Investing for tax-free returns

Investors don’t have to draw this income straight away. Ideally, they should reinvest it straight back into their portfolio to buy more shares. 

This creates a compounding effect, resulting in even higher dividends over time, which can deliver an even higher passive income stream when they finally retire.

The first step is opening an ISA. While it’s possible to invest without one, any dividends earned or capital gains made within the tax-free ISA wrapper are exempt from income and capital gains tax for life. 

This ensures more money remains invested, accelerating portfolio growth.

While not all investors can contribute the maximum £20,000 (I certainly can’t), paying in as much as possible – whether through regular monthly payments or one-off sums – can make a significant difference.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Diversification’s vital

After setting up the ISA, the next step is choosing a diversified spread of dividend-paying stocks. Income-focused investment trusts or funds can also provide diversification and simplicity, but I prefer buying individual stocks.

Some can generate spectacular yields. FTSE 100 fund manager M&G (LSE: MNG), which I hold, is renowned for its high dividend payouts, currently offering a trailing yield of 9.67%. 

While high yields aren’t always sustainable, M&G’s history of returning cash to shareholders gives me confidence that this one can endure.

M&G benefits from a strong brand, diversified products and steady fee income from asset management and insurance services. However, its share price has performed poorly, falling 8% over the past year and 17% over five years.

M&G’s one of my favourite dividend payers

This slump is partly due to wider stock market volatility, which has hurt customer inflows. The asset management industry also faces stiff competition from low-cost alternatives like exchange-traded funds (ETFs).

That said, I expect M&G’s share price to recover strongly once inflation and interest rates fall. While I wait, I’m reinvesting every dividend to build my position, optimistic about its long-term potential.

With £20,000 invested annually, an investor could build a diversified portfolio of a dozen-or-so income stocks to spread their risk. 

Assuming a return of 6.9% annually (in line with the FTSE 100’s long-term average), this portfolio could grow to £294,000 after 10 years.

With an average yield of 6% it could generate £17,640 of passive income a year, while leaving the capital invested to grow (and earn still more dividends). None of this is guaranteed, of course. Nothing is when buying shares.

Even smaller sums, like £2,000 or £5,000 annually, can yield outsize returns. The key is consistency, discipline and a long-term outlook. The more investors put in, they more they should get out.