Having breached the 7,000 barrier last week, I’ve begun to wonder when (and if) the top tier of UK businesses — the FTSE 100 — will eclipse its 2018 all-time high (7,903) and perhaps even charge across the 8,000 boundary. 

Today, I’m looking at few arguments for why this may and may not happen in 2021.

FTSE 100: reasons to be bullish

There’s certainly no shortage of reasons to think that recent momentum might continue.

Regardless of anyone’s political persuasion and views on the overall handling of the pandemic, I don’t think there can be much doubt that the UK’s vaccination programme has been a success relative to many other nations. On paper, this should breed confidence in the ability of the economy to recover strongly.

Naturally, the more home-focused FTSE 250 gains the most here (demonstrated by its own new all-time high). Even so, there’s no lack of London-listed giants that stand to benefit from this positivity. Drinks firm Diageo should see better numbers as bars and pubs fully reopen. If last week’s great unlock is anything to go by, Primark-owner Associated British Foods should see a swift rebound in business. Gambling behemoth Flutter Entertainment stands to gain as people are allowed back in sporting venues. 

Despite the 41% gain seen in the top tier since markets hit the bottom in March 2020, I think UK blue-chip stocks still offer good value. That’s even if they arguably aren’t as innovative and disruptive as the US tech companies are. Even so, I’d much rather buy great defensive businesses at a reasonable price than a loss-making stock at a gravity-defying price.  

Then again, there are a few reasons to be cautious. 

Dips in the road

For one, it’s important to recognise that many of the FTSE 100’s members do most of their business overseas. That’s clearly handy at times when UK plc is in the doldrums. I only need to look back at how share prices reacted during the Brexit process for evidence of this.

Then again, I need to consider the probability that our biggest companies will be held back by negative coronavirus news from abroad. Airlines such as IAG will naturally weigh on the index. So too will Intercontinental Hotels Group and engine-maker Rolls-Royce. 

Another thing worth remembering is that a few sectors are heavily represented in the FTSE 100. These are finance, mining and oil and gas. If we believe that the FTSE 100 is only going up then we must also believe that the same applies to things like commodity prices. The excitement over renewable energy and electric cars could support this. Alternatively, this may priced-in to stocks like BHP Group already. 

No rush

The FTSE 100 at 8,000? I’m can’t say it won’t happen in 2021. Nonetheless, another 14% gain or so from here in the next eight months is a big ask. That’s why I think staying the course is more important than setting arbitrary targets.

Equities are likely to remain the ‘best show in town’ for long-term investors. So, while no one can say for sure whether the FTSE 100 will eclipse previous all-time highs this year, we can hope that this record will be beaten eventually. And in the meantime, those invested in individual stocks or a cheap FTSE 100 exchange-traded fund can enjoy the dividend stream that holding shares (usually) provides.

The post The FTSE 100: next stop 8,000? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of Flutter Entertainment. The Motley Fool UK has recommended Associated British Foods, Diageo, and InterContinental Hotels Group. 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.

Burberry

First on my list is luxury goods manufacturer and retailer Burberry (LSE: BRBY). Last week’s Q3 trading update certainly provided those already invested, such as myself, with the reassurance that it was managing to weather the storm.

While overall comparable store sales fell 9% in the 13 weeks to Boxing Day thanks to travel bans and store closures, Burberry reported “particularly strong” full-price sales growth in markets such as Mainland China and Korea. These sales were driven by new, younger customers, highlighting the £7bn cap’s growing inter-generational appeal. The “exceptional” consumer response to its festive campaign featuring footballer Marcus Rashford was another highlight.

And the downsides? A full recovery will still take time. As of last week, 15% of Burberry’s stores remained closed and 36% were operating with reduced hours. The tourist centres in which it has its stores also continue to see devastatingly low footfall. But I think any rebound in sales in Europe, the Middle East and Africa later in the year could be a turning point.

Diageo

I can’t talk about FTSE 100 shares that might rally in 2021 and fail to mention Diageo (LSE: DGE).

As is to be expected, the beverage behemoth has been hit hard by the closure of restaurants, pubs and bars globally. Similar to Burberry, however, I think Diageo’s share price can begin to rally as and when restrictions are gradually lifted. After all, demand for premium alcohol won’t have been permanently damaged by the pandemic. If anything, I think the opposite will prove the case as friends and families reunite. 

In the meantime, I can’t ignore the dividends. Despite its current trials and tribulations, Diageo continues to return cash to its owners. 

With its bursting portfolio of brands and global reach, I see this as one of the best ‘buy-and-hold’ options around.

Intercontinental Hotels Group 

A final FTSE 100 share that I feel should continue to rebound strongly is Intercontinental Hotels Group (LSE: IHG). Just like the other shares I’ve mentioned, its value was walloped by the coronavirus last March as lockdowns came into force. No tourists or business travel, no trade.

Since then, we’ve seen some green shoots. In October, the business behind brands such as Regent and Crowne Plaza posted a 53.4% drop in third-quarter revenue per available room. This was actually an improvement on the 75% drop endured in Q3. Occupancy levels also rose from 25% to 44%. Should Intercontinental reveal a further improvement to trading next month, I think the share price should rise accordingly.

Let’s not forget though, such firms have been hit hard by the pandemic and will take time to fully bounce back. But in better times, IHG has shown itself to be a quality operator. It usually generates decent margins and high returns on the capital it invests. I can see those good times returning. A resumption of global travel, should boost the shares.

The post 3 FTSE 100 shares I’d buy for the 2021 stock market rally appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Burberry. The Motley Fool UK has recommended Burberry, Diageo, and InterContinental Hotels Group. 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.

Among the biggest casualties of the coronavirus pandemic have been Intercontinental Hotels (LSE: IHG) and Premier Inn owner Whitbread (LSE: WTB). Their shares are now down 34% and 43% respectively compared to the start of January. Go back to mid-March and they were even lower.

With lockdowns gradually lifting around the world, however, is now the time to buy in?

More disruption ahead

Today’s Q1 update from Intercontinental has barely budged the share price. This suggests the market’s expectations on how awful the numbers would be weren’t wide of the mark. 

Revenue per available room — the hotel industry’s preferred performance measure — fell just under 25% in the quarter, compared to the same period in 2019. Unsurprisingly, March was a nightmare month for the FTSE 100 member. Revenue tumbled 55%, due to the implementation of travel bans and social distancing.

Based on the company’s predictions for April, Q2 is likely to be even worse. Revenue last month is estimated to be 80% lower, which makes sense given that 1,000 of Intercontinental’s hotels were shut.

Commenting on today’s numbers, CEO Keith Barr said the coronavirus is “the most significant challenge both IHG and our industry have ever faced” and that Intercontinental expected “continued disruption in the months ahead.“

Contrarian FTSE 100 buy?

There were, however, a few chinks of light. The company has, for example, seen lower levels of revenue decline than the industry as a whole in the US. It attributed this to being less dependent on international travel and big events to make money than in other parts of the world.

As you might expect, Intercontinental has also been proactive in slashing costs and now has a decent cash pile at its disposal. Encouragingly, the company believes it can continue to operate “for at least 18 months in a theoretical ‘zero occupancy’ environment.” This gives me confidence that now might be the time to at least start building a position in the £6bn-cap.

An expected earnings per share decline of 26% in 2020 leaves the stock on a P/E of 18. That’s not cheap if we assume that travel is going to be disrupted for months to come. That said, I’d still be more inclined to buy Intercontinental over its FTSE 100 peer. 

Limited upside?

I’ve long considered Whitbread over-priced, especially after it sold its popular Costa Coffee brand to Coca Cola. I’m not sure my opinion has changed, even after the share price decline witnessed in 2020.

Don’t get me wrong, there are things to like. It is, after all, the UK’s leading hotel business. The firm is also growing its presence in Germany which, incidentally, has already begun easing lockdown measures.

Based purely on quality metrics, however, it’s clear Intercontinental is a better investment. Even when running optimally, Whitbread makes consistently lower returns on the money it feeds into the business.

Intercontinental also has multiple great brands and hotels around the world. All this goes some way to explaining why it features in Terry Smith’s incredibly popular Fundsmith Equity Fund. And Whitbread doesn’t. I’d opt for Intercontinental. A P/E of 17 for FY21 still looks a bit too dear to me.

The post Time to buy these battered FTSE 100 stocks? appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group. 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.

Is today’s reaction a sign that holders should consider banking profits after a strong post-election run or does the new-found clarity on our departure from the EU make today’s fall an opportunity?

I’m inclined to suggest the former.

“Challenging market conditions”

Total sales growth — taking into account the company’s UK and international operations — came in at 1% over the 13 weeks to 28 November, bringing the figure for the year to date to 0.3%. 

In the UK alone, sales growth was sluggish at just 0.3% over the quarter, attributed by CEO Alison Brittain to “challenging market conditions” where outperformance in the central London market had to make up for weakness elsewhere in the country.

On a more positive note, the Dunstable-based business did say that it was pleased with the performance of its three hotels in Germany and that its pipeline in the country now stands at roughly 8,500 rooms across 48 hotels with 20 of the latter expected to open in 2020. In other news, cost savings should also allow it to deliver full-year numbers in line with expectations. 

Looking ahead, the company remarked that it remained “confident” on its growth strategy although business confidence in the near term (and the consequent impact on trading) was “difficult to predict”. It also expects cost inflation of around £75m, partly due to the higher National Living Wage.

Better bet?

Of course, Whitbread isn’t the only listed hotel operator finding things tough. Back in October, FTSE 100 peer Intercontinental Hotels (LSE: IHG) — whose brands include Regent and Holiday Inn — reported a 0.8% decline in revenue per room in Q3 as a result of the protests in Hong Kong and stodgy trading in the US and China. Similar to Whitbread, however, the company did say that it “remained confident” of its financial outcome for the rest of the year.

So, which of the two is the better buy right now?

Given the choice, I’d say Intercontinental is potentially the safer bet given the geographical diversification on offer (it has almost 5,800 hotels globally). A forecast P/E of 20 isn’t cheap, but returns on capital are consistently higher than at Whitbread. The latter trades on roughly the same valuation for FY21, despite its dependence on the UK market and the fact that it no longer owns the jewel that was Costa Coffee. I also suspect the certainty that Brexit will happen at the end of this month and the firm’s plans to build market share in Germany now look more than priced in, especially when the rise in popularity of alternative options for travellers such as Airbnb is considered.

In terms of income credentials, there isn’t much to separate these top tier giants. A predicted 136 cents per share return in FY20 (104p) leaves Intercontinental yielding just under 2.1%. Whitbread looks set to yield 104p per share, equating to a yield of 2.3% after taking into account today’s price fall. Both payouts should be safely covered by profits. 

All told, Intercontinental gets my vote over Whitbread, but the potential headwinds faced by both companies lead me to think that there are probably better opportunities to make money elsewhere in the market in 2020. 

The post Does the Brexit breakthrough make this FTSE 100 stock a buy? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group. 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.

I think major hotel brands are likely to be good long-term investments… if the price is right. Today, I’m going to look at three London-listed hotel stocks I’d be happy to own.

Biggest and best?

I’ll start with FTSE 100 firm Intercontinental Hotels Group (LSE: IHG). This £9.4bn group owns 17 hotel brands including Holiday Inn, Crowne Plaza, InterContinental and Six Senses. What it doesn’t own is hotels — at least, not many.

Over the years, IHG has gradually shifted to owning brands. Most of the hotels are franchised — the group controls 837,000 rooms in 5,603 properties, but owns just 23 hotels.

This model means spending requirements are fairly low, but profit margins are high. Cash generation is good and, although the dividend yield is just 2%, InterContinental has a record of making one-off extra cash payments to shareholders whenever possible.

The shares are close to all-time highs and trade on about 20 times forecast earnings. I wouldn’t be afraid to buy at this level but, personally, I’d aim to wait for the next market dip to secure a better entry price.

Closer to home

One option for investors who’d like more direct exposure to the UK market is Premier Inn-owner Whitbread (LSE: WTB).

At the end of February, there were 804 Premier Inns in the UK, with 76,171 rooms. The business struggled to grow last year and revenue per available room (an industry standard measure) fell by 1.7% to £48.99.

However, one attraction is that the brand is extremely strong, with 97% of bookings made directly. This should help build customer loyalty, as it suggests many travellers simply look for the nearest Premier Inn to their destination, rather than searching for other hotels.

The company plans to continue expanding in the UK and has a pipeline of nearly 13,000 new rooms. Using cash from the Costa sale, the company is now planning a significant rollout in Germany, where it believes the budget market is underserved.

Whitbread shares have pulled back from the £51 high seen earlier this year. My feeling is the shares could continue to fall back towards the £40 level, where I’d be keen to buy.

Primed for growth?

If you’re looking for a smaller business with the potential to deliver rapid growth, one company I’d consider is budget brand easyHotel (LSE: EZH).

Revenue has tripled from £3.5m to £11.3m over the last five years. Results published today suggest this momentum is continuing. Revenue for the six months to 31 March rose by 52.6% to £7.26m, compared to the same period last year.

The profitability of this business has been fairly weak so far, in my view. However, I’m hopeful this will improve as the company continues to expand and shifts its focus towards franchising.

easyHotel shares have fallen by nearly 40% over the last year and now trade broadly in line with their book value of 81p. The shares look expensive relative to earnings. But if the group’s rollout continues at this pace, I believe profits could rise quickly. I see this as a buy for long-term investors.

The post 3 growth stocks I’d buy and hold for the next 50 years appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group. 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.

Certainly, in many cases their valuations are less appealing than they were at the start of the year. But with the world economy still making encouraging progress, a number of large-cap stocks could offer strong bottom-line growth potential.

With that in mind, here are two FTSE 100 stocks that could be worth buying and holding for the long term. While not cheap, they could generate continued share price growth after making strong gains in 2019.

InterContinental Hotels

Global hotel operator InterContinental Hotels (LSE: IHG) released a first-quarter trading update on Friday, with its net system size increasing by 5.4% during the period. In the quarter, 24,000 rooms were signed, which is its highest number of signings in 12 years. The company’s global revenue per available room (RevPAR) increased by 0.3% compared to strong comparators, while its performance in the US was encouraging. There were also market share gains made in China, which could prove to be a highly lucrative market over the long run.

InterContinental Hotel’s efficiency programme is expected to deliver $125m in annual savings by 2020. It is focused on offering increasingly innovative design, while seeking to provide service enhancements in order to increase its differentiation. This could boost its financial performance over the long run, while helping to justify its price-to-earnings (P/E) ratio of 20. As such, it could offer long-term investment appeal within what may prove to be a fast-growing world economy.

ABF

Primark owner ABF (LSE: ABF) has gained 24% since the start of 2019, with the prospects for the business continuing to be upbeat. It may have greater resilience in an uncertain period for consumers in the UK due to its budget focus, which could resonate with shoppers at a time when consumer confidence is at a low ebb.

The non-retail parts of ABF’s business have generally been performing well in recent quarters. Although its sugar division has experienced challenging operating conditions, the exposure it has to a variety of industries means that it could offer greater diversity and lower risk than many of its FTSE 100 peers.

Certainly, ABF’s P/E ratio of 18 is not especially attractive at a time when a number of FTSE 100 stocks still trade on substantially lower valuations. However, given its resilient growth outlook, as well as its range of operations, it could prove to be a business that offers robust growth over a sustained period. As such, now could be the right time to buy it, with it having the potential to become increasingly popular among investors in a wide range of stock market conditions.

The post 2 surging FTSE 100 growth stocks I’d buy and hold for the next 5 years appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods and InterContinental Hotels Group. 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.