If you’re picking stocks for a long-term portfolio, I believe the secret to beating the market is buying the right stocks at the right time. Here, I’m going to look at two FTSE 100 dividend stocks I’d like to own in a long-term ISA portfolio. I’ll explain which one I’d buy today and why I’m not (yet) buying the other one.
Buy low, sell high
Buy Low, Sell High. It sounds easy and obvious but, in reality, it can be quite difficult. Cheap, unloved stocks always seem to have problems. You’ll find people suggesting that things will only get worse. That their business models are broken.
Sometimes this happens. But, in my experience, big companies generally find a way to fix their problems. They’re also much less likely to go bust than small firms, thanks to their greater diversity and financial firepower.
One stock I believe will be a long-term winner from current levels is Barclays (LSE: BARC). Like most of its peers, this FTSE 100 bank has had a slow and painful recovery from the financial crisis. Ultra-low interest rates and new regulations have put pressure on profit margins, which remain low. PPI compensation and costly legal settlements haven’t helped either.
However, most of these problems are now in the past. Banks’ core services remain in demand and I’m confident that big players, like Barclays, will eventually work out how to restore some of their lost profitability.
In the meantime, the Barclays share price looks cheap to me. The shares trade at a 40% discount to their tangible net asset value of 275p per share, and offer a dividend yield of 5.3%. As the bank’s profitability recovers, I’d expect the shares to move much closer to that 275p figure. Barclays is a stock I’d be happy to buy and hold for the next decade.
I want this stock
One stock I’d also like to own is London Stock Exchange Group (LSE: LSE). The London stock market operator handles vast flows of transactions and data in the City and for other key financial markets.
LSE Group is in the middle of a $27bn deal to acquire data provider Refinitiv (formerly known as Thomson Reuters). This will add market data and analytics services to the group’s portfolio, positioning it to offer a much broader range of services.
The Refinitiv deal comes on the back of a number of years of strong growth. Shareholders have got pretty excited and pushed LSE stock to record highs of more than £70 — about 37 times 2019 forecast earnings.
Right stock, wrong time?
I agree that LSE Group is likely to deliver continued long-term growth. But I think the shares are starting to look expensive. The Refinitiv acquisition is an all-share deal that will see LSE Group increase its share count by nearly 60%. The UK business will also take on about $13.5bn of debt from the US firm.
LSE’s chief financial officer, David Warren, has announced plans to leave next year and he will be leaving on a high. But his replacement will have to work through a period of consolidation and debt repayment. I suspect the shares will fall to a more reasonable valuation during that time.
LSE Group is going to stay on my watch list for now. But I’d be a buyer if the stock fell below £50.
