With investors enduring a tough start to 2022, I’m been taking a closer look at FTSE 100 stocks that tend to experience less price volatility relative to the market.

These are known as low beta stocks. In theory, anything with a beta of below one should move less in line with the index (which always has a beta of one). By contrast, stocks with a beta of over one could give investors a more bumpy ride. 

FTSE 100

The essential nature of what National Grid (LSE: NG) does — “connecting millions of people to the energy they use” — makes the company a potentially great stock to hold at times like these. The Grid has a beta of just 0.3, according to data from Stockopedia. This should make it far less prone to violent market moves.

Another attraction is the dividend stream. In its current financial year, the company is expected to return 50.8p per share to its owners. Using today’s share price, that gives a yield of 4.7%. So, even if it did fall back, there’s a nice payout to compensate. 

The P/E of 17 is higher than the five-year average of just under 14. However, this makes sense considering how rattled investors have been recently. One potential drawback is that the shares probably won’t fly when markets recover.

Resilient sector

As sectors go, anything to do with healthcare tends to hold its own when investors get skittish. Hence, a company like GlaxoSmithKline (LSE: GSK) may offer me some protection. In line with this, GSK has a beta of 0.6. 

The shares are up slightly so far this year, although this may be more to do with Unilever sniffing around its consumer healthcare business. It will be interesting to see what under-fire CEO Emma Walmsley has to say about the rejected bid when the company reports on Wednesday.

At 3.3%, GSK stock comes with a decent dividend yield. It’s also cheaper than FTSE 100 peer AstraZeneca at less than 14 times earnings. That said, its drugs pipeline could do with a shot in the arm and remains a potential risk. 

‘Buy again’ brands

Speaking of consumer goods companies, a final stock I’d consider buying to mitigate market volatility would be Reckitt (LSE: RKT).

Like the other stocks mentioned, Reckitt has a low beta (0.3). It also possesses a bursting portfolio of ‘sticky’ hygiene, health and nutrition brands. While the rising cost of living can force people to reel in their discretionary spending, products that keep things clean and safe are unlikely to be sacrificed, especially following a global pandemic. 

My only concern with Reckitt is that it hasn’t learned from its horrible acquisition of the infant formula business from Mead Johnson a few years ago. This brings me to a vital point about low-beta stocks.

No guarantees

A low-beta value now does not guarantee anything about the future performance of a company’s share price. Before the Financial Crisis, FTSE 100 juggernauts like Lloyds Bank were regarded as relatively safe destinations for investors’ money. That hasn’t worked out well. 

Therefore, a vital point to grasp is that beta values change over time. Nor are they a replacement for in-depth research. This is why I will continue to diversify my portfolio across all sorts of quality companies, thereby giving myself a better chance of growing my wealth slowly but surely over the long term.

The post 3 ‘safe haven’ FTSE 100 stocks to buy appeared first on The Twelfth Magpie.

More reading

• Down 15%! Is National Grid’s share price really a bargain right now?
• 3 British dividend stocks to consider for passive income this summer
• How much could a £25,362 Stocks and Shares ISA be worth in 10 years?
• 2 juicy income shares with big exposure to AI
• Are National Grid shares entering a new valuation era in the FTSE 100?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline, Lloyds Banking Group, Reckitt plc, and Unilever. 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.

Should I be adding this consumer goods behemoth to my shopping list too? 

FTSE 100 laggard

Based on recent performance, only contrarians need apply. Reckitt fell almost 12% in value over the previous trading week. All told, this meant that Reckitt’s shares had tumbled 30% since the end of July 2020. Contrast this with a 17% rise in the usually pedestrian FTSE 100.

At first glance, this fall seems odd. After all, this is a company that owns Dettol and Lysol — brands that shoppers have been flocking to over the last year as we’ve all become just that little more conscious of keeping things as clean as possible.

Unfortunately, it would seem that inflation is beginning to bite. A rise in the price of raw materials in the first six months of 2021 is having a negative impact on profit margins at the FTSE 100 constituent. Factor in the potential for sales of disinfectants to moderate as we emerge from the Covid-19 storm and Reckitt’s loss of momentum makes some sense.

Time to buy?

I think there are arguments for and against me buying this stock now.

The former includes the fact that Reckitt boasts a portfolio of easily recognisable, ‘sticky’ brands (which also includes Air Wick, Calgon and Durex). It seems fair to say that demand for its products will never evaporate, even if cheaper alternatives are available. This gives Reckitt a defensiveness some other companies in the FTSE 100 arguably lack. It also makes the valuation of 19 times forecast earnings tempting, in my opinion. 

The dividend stream compensates holders as well. I expect Reckitt to return 175p per share to holders this year. That’s a nice 3.2% yield at today’s share price  — far more than I’d get via a Cash ISA.

Although one should not draw too many conclusions from such as small period of trading, it’s worth highlighting that Reckitt didn’t feature in the list of most popular sells last week either. This may suggest that a least some of those buying now have the intention of staying invested for a while. 

Ongoing weakness

Of course, how long a full recovery takes is up for debate. As things stand, no one can be sure whether inflation is here to stay. If it is, there’s no guarantee Reckitt will be successful in passing on costs to consumers via price hikes. The shares will probably resume their downward momentum if sales decline. 

Regardless of this, performance over the long term hasn’t exactly been stellar. Annualised returns at Reckitt have been only slightly better than the FTSE 100 over the last 10 years. Those advocating a no-frills passive approach to investing would use this as proof that buying a specific stock rather than an exchange-traded fund isn’t worth the additional risk. So, the question I need to ask myself is whether I’d get a better result over the next decade.

On the fence

For now, I’m content to watch Reckitt from the sidelines. While I do think it will eventually recover, I also think there are potentially far better options in the index for me to make money in the meantime.

The post Investors are buying this FTSE 100 stock. Should I? appeared first on The Twelfth Magpie.

More reading

• Start buying shares with just £20 a week? Here’s how even that could help someone build wealth
• Here’s how putting £800 a month into a Stocks and Shares ISA from age 27 could fund a £2m retirement!
• Relying on the State Pension for retirement? Here’s why it might not be enough
• 3 beaten-down FTSE 100 shares to consider buying and holding for a decade
• How much would you need in a SIPP to replace a £3,000 monthly salary?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Opening the account, however, is the simple part. Deciding which shares to purchase is a more nuanced decision. This could put first-time investors off. Only 3.3% of the UK population were subscribed to a Stocks and Shares ISA in 2019. However, if you are one of the investors just dipping a toe into the water of UK shares, I recommend looking ahead.

UK shares options

I think it’s best to examine potential investments with long-term success in mind. For me, this means finding companies with good track records of decision-making, and whose future prospects are sound. These may be mature companies, and so are not necessarily primed for explosive growth, but that can generate solid returns over many years.

Companies with this characteristic often operate in markets with high barriers to entry. This discourages new firms from providing competition. An example in UK shares would be Reckitt Benckiser (LSE: RB). A household goods supplier that may not necessarily be a household name. But readers will recognise brands like Dettol, Calgon, Durex, and Nurofen. Strong, trusted brands are a bedrock of long-term success.

Reckitt Benckiser 2020 perfomance

As a hygiene product supplier, Reckitt has enjoyed a strong 2020 performance. Indeed, compared to 2019, sales have increased over 9% during the first three quarters. From the March lows seen across all UK shares, the RB share price rebounded strongly.

The share price has seen a recent fallback, however. This has possibly been driven by succesful vaccine developments. As the pandemic unwinds, logic dictates that demand for cleaning products may fall. But growth among health products and in developing markets leaves Reckitt well primed for future growth. And a reasonable dividend yield of around 2.6% will support capital growth if reinvested through a Stocks and Shares ISA.

Diageo — another strong UK share

Over the upcoming Christmas period, readers may enjoy a stiff drink after the trials of 2020. Fancy a pint of Guinness? Or a small dram of Johnnie Walker whisky? Both are manufactured by Diageo (LSE: DGE), among many other well known brands. Ben Race recently examined the investment case for Diageo.

The closing of pubs and restaurants has impacted demand, with net sales to June 2020 down by 8.7%. Remember though, investments in Stocks and Shares ISA are for the long-term. Diageo’s guidance is to expect an advance in operating profit through to June 2021.

Traditionally, Diageo has seen predictable sales and cash flows, allowing a sustainable dividend of around 2.5%. This has increased steadily over the past five years, with good dividend cover in place. Diageo’s defensive qualities have seen it weather the pandemic, and it is well placed to grow in a post Covid-19 world.

UK shares final thoughts

I think Reckitt Benckiser and Diageo would make two great long-term components of a balanced portfolio with a growth outlook. This is how I go about finding investments for my own Stocks and Shares ISA. By applying the same kind of thinking, Foolish readers can identify UK shares investment candidates for their own Stocks and Shares ISAs.

The post 2 UK shares I’d buy for a Stocks and Shares ISA appeared first on The Twelfth Magpie.

More reading

• Newsflash: the Diageo share price just climbed!
• Which British dividend shares could supercharge a passive income portfolio in 2026?
• Has the turnaround finally started for Diageo shares?
• How much longer can the Diageo share price stay this low?
• Is it finally game on for the Diageo share price?

bwatson1 has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.

The world hasn’t yet found a way of living without oil. So, I’m confident about my portfolio in the long term. However, oil price volatility is concerning. And it’s more troubling now than usual because it is combined with the effects the coronavirus-induced economic shut-down.

In these circumstances, it makes sense to try to protect your passive income from as many market volatilities as possible. A balanced, all-weather portfolio can help to achieve this. And in a recession, defensive stocks can be a real comfort blanket.

Firms in this sector sell goods in constant demand that meet physiological needs. When money is tight, peoples’ spending priorities are on essential items, not buying oil stocks. And these are often reflected in the profitability of those businesses that provide accordingly.

Two best defensive shares

Indeed, hygiene-product seller, Reckitt Benckiser (LSE: RB) depends on hygiene product revenue for 25% of its business. Reckitt owns many well-known brands including Dettol, Harpic, and Cillit Bang. Sales for these items are currently growing due to the Covid-19 pandemic. This should help the firm grow its revenue, profitability, and, hopefully, dividend income.

Moreover, Reckitt’s recent purchase of baby formula maker Mead Johnson provides the consumer staples giant with an extremely profitable consumer health business. And another category leader with pricing power. After a relatively flat period, its long-term prospects are good. 

Food is another essential good. I think FTSE 250 star Tate & Lyle (LSE: TATE) is a hidden gem. Tate’s stock has risen by about 75% over the last 10 years but this trend is often overshadowed by the disappointing share price performance of 2016 and 2018.

However, the business has refocused since then. Tate’s 2019 half-yearly results showed sales up 2% and operating profit up 3% from 2018. Its efficiency measures appear to be working and the firm is looking for acquisitions to grow its food and beverage solutions division. Indeed, the firm is currently outperforming the FTSE 250.

Passive income stars

I think both these companies are passive income stars.

Reckitt Benckiser is one of the Top 20 FTSE 100 dividend payers for passive income. These are the few companies that pay out the bulk of dividends across the index. The 2.69% yield is not bad and with a dividend cover of 1.88, it is affordable. Reckitt is currently trading around 6,474p, with HSBC giving it a price target of 6,800p. So, there may be room for growth here too.

Tate & Lyle boasts a juicy yield of just under 4.4.%, high for the food sector. Its dividend cover is 1.64, meaning your passive income is well covered by the firm’s earnings. Also, its dividend per share has improved from 23p to 29p over the last 10 years. And the firm has never missed a payment.

A dividend stock should provide you with a stable passive income by being reliable, unlike oil stocks. Both of these companies have demonstrated this over time. Neither Reckitt nor Tate are likely to offer you big upsides in a bull market. But right now, the predictable nature of the businesses and the sustainable dividends on offer are trade-offs I’m delighted to make.

The post Forget oil stocks! I’d buy these 2 best shares now for passive income appeared first on The Twelfth Magpie.

More reading

• UK shares: there’s a reason so many foreign buyers are circling!
• Start buying shares with just £20 a week? Here’s how even that could help someone build wealth
• Here’s how putting £800 a month into a Stocks and Shares ISA from age 27 could fund a £2m retirement!
• Relying on the State Pension for retirement? Here’s why it might not be enough
• 3 beaten-down FTSE 100 shares to consider buying and holding for a decade

Rachael FitzGerald-Finch has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Train’s strategy for the trust is simple. Buy “excellent listed companies that appear mostly undervalued” with the intention of beating the return of the FTSE All-Share Index. He looks to do this through a concentrated, high-conviction portfolio of around 30 stocks.

Perhaps the most important aspect of the strategy is its very low turnover rate — an approach also followed by peer Terry Smith. When Train puts money to work, it’s usually worth paying attention. And that looks to be exactly what he’s just done.

New addition

Yesterday afternoon, it was strongly rumoured the fund manager had made his first UK-listed purchase for an astonishing nine years by taking a stake in soap maker PZ Cussons (LSE: PZC) — owner of brands such as Imperial Leather, Sanctuary Spa and Original Source. 

If true, the fact Train has decided to buy a slice of PZ makes sense. Based on its November factsheet, very close to half of the trust’s portfolio is made up of stocks from the consumer goods sector with Unilever, Burberry and Diageo three of its largest holdings.

Notwithstanding, the addition of PZ is intriguing when it’s considered Train very recently bemoaned the lack of valuable UK brands, stating that many had previously been sold off too early to foreign buyers.

It looks like he’s had a change of heart. The question is, should Foolish investors follow his lead?

Tough trading

To say PZ Cussons is having a difficult time of late is putting it mildly. Problematic trading in Nigeria — one of its biggest markets — has contributed to the shares halving in value in roughly 18 months. Taking last week’s trading update for the six months to the end of November into account, a recovery still looks some way off.

Despite growing market share in the UK, US and Indonesia, the business saw falls in revenue and operating profit compared to over the same period in 2018. On top of this, CEO Alex Kanellis announced he will be leaving with a decision on his replacement not expected until mid-2020. 

Of course, you might say PZ’s predicament is already factored into its price. Right now, the shares trade on just under 15 times earnings — cheaper than other defensive consumer goods giants such as the aforementioned Unilever and Reckitt Benckiser (on 19 times and 18 times earnings, respectively).

Aside from value, it’s also worth highlighting PZ’s income credentials. The company is expected to return a total of 8.31p per share to its owners this year. At the current share price, that gives a yield of 4.6%, covered 1.5 times by profits — decent income for those prepared to wait things out. 

While not all of his picks have been winners (education product supplier Pearson being an example), it would be brave to bet against Train. Assuming management’s attempts to restructure the company prove successful, there are no further setbacks in key markets, and a new CEO is able to hit the ground running, his decision to buy PZ may be inspired. It’s on my watchlist for now…

The post Nick Train has just bought this battered FTSE 250 stock. Time to pile in? appeared first on The Twelfth Magpie.

More reading

• After upgraded guidance, is PZ Cussons primed for a FTSE 250 comeback?

Paul Summers owns shares of Burberry. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK owns shares of PZ Cussons. The Motley Fool UK has recommended Burberry and Diageo. 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’m not tempted. The fact is millions of people could spend literally millions of lifetimes playing the lottery and still never scoop a jackpot or life-changing sum. Instead of buying lottery tickets, I’d aim to get rich by buying shares in FTSE 100 companies British American Tobacco (LSE: BATS), Reckitt Benckiser (LSE: RB), and Tesco (LSE: TSCO). Here’s why.

£6b trumps £25m!

By buying shares in a company you become a part-owner of the business and its assets. BATS’s assets are currently £148b, RB’s are £39b and TSCO’s are £57b. Last year, these companies generated cash of £10.3b, £2.5b and £2b from operating their assets. They reinvested some of the cash in the business, with a view to generating higher cash flows in future, and distributed some of the cash to shareholders as dividends (£4.3b, £1.2b and £0.4b).

I say, forget a share of tonight’s £25m lottery! I’d rather have a share of the three companies’ £6b dividends. And the dividends I’d expect them to pay in future years for as long as I owned the shares.

The joy of dividends

At the time I’m writing, BATS’s share price is 2,985p, and City analysts are forecasting the company will pay a dividend of 210p on each share this year (a 3.4% increase from last year). This would give a dividend yield of 7%. Put another way, BATS would hand you a £7 cash dividend for every £100 of shares you own.

RB’s share price is 5,950p, the forecast dividend is 171p (0.2% up on last year), and the yield is 2.9%. For TSCO, the share price is 233p, the forecast dividend is 7.95p (37.8% up on last year), and the yield is 3.4%. The average yield of the three companies is 4.4%.

It costs £104 a year to play the Saturday lottery each week. If you used this to buy shares in BATS, RB, and TSCO each year, and also used your dividends to buy additional shares, I calculate (assuming a 4.4% yield) that after 16 years you’d be receiving enough in annual dividends to play the Saturday lottery each week for free!

Or, of course, you could go on reinvesting your dividends to own a bigger and bigger stake in the three companies’ assets and cash flows.

That 7% yield

Finally, I think it’s worth commenting on BATS’s relatively high dividend yield of 7%. The company is one of the giants of the industry, and has been a lucrative long-term investment for those with no ethical objection to owning shares in this sector.

Lately though, some investors have become concerned about increasing regulation, as well as BATS’s current elevated level of debt, following a large acquisition. However, due to the company’s history of resilience and adaptability, I have a glass-half-full view, and see the 7% yield as good compensation.

If you’re averse to investing in tobacco stocks or are concerned about the outlook for the industry, the good news is there are plenty of other FTSE 100 companies around that I think offer attractive investment potential. And you’ll find many of them featured in the pages of the Motley Fool.

The post Forget tonight’s £25m Lotto jackpot! I’d buy these FTSE 100 stocks appeared first on The Twelfth Magpie.

More reading

• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?
• Here’s what a surging Tesco share price has done to £10,000 invested 5 years ago
• Double a state pension thanks to dividend shares? Here’s how it could be done
• How much second income am I aiming for with £20,000 in this superb FTSE 100 dividend star?
• Are Tesco shares losing their momentum?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

Inns and outs

Whitbread’s plan to demerge its Costa coffee business was pre-empted when the board accepted a too-good-to-refuse £3.9bn offer for the chain from The Coca-Cola Company. The price was equivalent to almost 50% of Whitbread’s enterprise value, while Costa generated less than 25% of group profit.

Whitbread’s used £2.5bn buying back and cancelling its own shares. It now has 27% fewer shares in issue than at the time the Costa deal was announced. I think the buybacks were a shrewd move and will prove to have been at cheap prices if Whitbread successfully delivers its growth plans for Premier Inn, particularly its expansion into Germany.

On this score, it was encouraging to hear on the post-results conference call that the latest hotel in Hamburg has matured faster than any comparable UK hotel, and that management is “increasingly confident of replicating the UK’s success.”

The company certainly has the firepower to carry out its plans. Yesterday’s results showed cash of £805m on the balance sheet, and borrowings of £882m out of total available facilities of £1.8bn.

Attractive valuation

According to Whitbread’s corporate website, based on data at 1 October, the City consensus forecast for underlying pre-tax profit this year is £374m. At a 19% tax rate this would translate into a bottom-line profit of £303m, and with 133.7m shares in issue, earnings per share of 227p. Buyers of the shares at 4,200p are thus paying 18.5 times forecast earnings.

Despite current challenging market conditions in the UK, I think Whitbread’s valuation is attractive on a long-term view. Meanwhile, in the near term, I wouldn’t be at all surprised if the company received a takeover offer.

Disappointing

Reckitt Benckiser described the Q3 results it unveiled yesterday as “disappointing.” While its hygiene home division, which generates about 35% of group profit, performed well, with like-for-like revenue growth of 4.5%, its larger health division saw a 0.3% fall in revenue, primarily due to issues in the US and China.

Chief executive Laxman Narasimhan said: “This performance is a reflection of an extended period of significant change and disruption in the company.”

Discount valuation

Since the start of 2018, under its RB 2.0 project, the company has been transforming hygiene home and health into two structurally independent business units, a process expected to be completed by mid-2020.

I’ve been saying for a while I think there’s a strong case for formally splitting the company, in the same way Whitbread had planned to demerge Costa. The latest results add to my conviction, and an announcement this week of a new chief financial officer joining the company by April adds to my hope it will happen.

At a share price of 5,800p, RB is trading at 16.5 times forecast 2020 earnings, compared with a sector rating of around 20 times. I could see the company closing the discount over time on improved operational performance, or moving to a premium in short order if it announces a demerger next year.

The post Have £2,000 to invest? I’d buy these 2 FTSE 100 stocks right now appeared first on The Twelfth Magpie.

More reading

• Start buying shares with just £20 a week? Here’s how even that could help someone build wealth
• Here’s how putting £800 a month into a Stocks and Shares ISA from age 27 could fund a £2m retirement!
• Relying on the State Pension for retirement? Here’s why it might not be enough
• 3 beaten-down FTSE 100 shares to consider buying and holding for a decade
• How much would you need in a SIPP to replace a £3,000 monthly salary?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Road to recovery

Having endured a pretty awful 2018, holders of advertising beast WPP (LSE: WPP) must be relieved that the share price has stabilised somewhat in 2019. Assuming there have been no nasty surprises over the last few months, I suspect the next update on trading – due 25 October – could see more investors return to the stock. 

Back in August, the £13bn market cap logged better-than-expected organic sales over the second quarter of its financial year. The 1.4% dip surprised analysts, who had forecast a 3% fall. As a result, full-year guidance of a drop somewhere between 1.5% and 2% was maintained.

It’s still early days, but for a company that some believed would crumble without the influence of founder Sir Martin Sorrell, the strategy of his successor, Mark Read, appears to be doing rather well.

The stock looks reasonably priced at 12 times earnings and those comfortable enough to invest at this level should be in line for some decent dividends – WPP yields almost 6% right now. 

Return to growth

Consumer goods firm Reckitt Benckiser (LSE: RB) reports next month too. Like WPP, the owner of brands such as Durex and Cillit Bang has seen its share price stabilise over 2019, although it’s still way down from the highs seen back in May 2017.   

Those already holding the stock will be looking for signs of a return to growth now that Laxman Narasimhan has taken the reins after Rakesh Kapoor resigned from the board, and particularly after comments made by the company earlier in the year.

At its half-year results in July, Reckitt revealed disappointingly flat like-for-like performance, but went on to say that it expected the second half to show a return to its “more normal level of growth“. We’ll get some indication of whether this is the case when a trading statement arrives on 22 October.

A current price-to-earnings (P/E) ratio of 19 times forecast earnings makes Reckitt cheap relative to its five-year average on the metric (22.5). At 2.6%, the dividend yield is adequate but clearly not as attractive as that offered by WPP.

Less inviting

A third top-tier business reporting next month is Premier Inn owner Whitbread (LSE: WTB). Interim results are due on 22 October.

Having sold the highly successful Costa Coffee chain to Coca-Cola, Whitbread is now focusing on expanding its Premier Inn brand into Europe, specifically Germany. Since 74% of market share is still held by independent operators, it’s no surprise that the £6bn company has been drawn to the country. Only last week, it announced the purchase of three independent hotels (bringing its total estate to six) with the view to relaunching them early next year.

Personally, I wouldn’t be a buyer right now. Considering the potential for consumer confidence to dip further in the coming months as a result of ongoing political turmoil, not to mention huge competition from the likes of Airbnb, Whitbread doesn’t boast an attractive risk-return tradeoff.

On 21 times forecast earnings, it’s also the most expensive (and, at 2.1%, offers the smallest yield) of the three discussed here. Any hint of underperformance next month could see the shares slide. 

The post 3 FTSE 100 stocks to watch out for in October appeared first on The Twelfth Magpie.

More reading

• Start buying shares with just £20 a week? Here’s how even that could help someone build wealth
• Here’s how putting £800 a month into a Stocks and Shares ISA from age 27 could fund a £2m retirement!
• Relying on the State Pension for retirement? Here’s why it might not be enough
• 3 beaten-down FTSE 100 shares to consider buying and holding for a decade
• How much would you need in a SIPP to replace a £3,000 monthly salary?

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

Smiths isn’t the only such stock on my radar at the moment. Here, I’ll explain why I believe a similar story could unfold at FTSE 100 consumer goods giant Reckitt Benckiser (LSE: RB), where I see a potential valuation uplift of 37%.

The power of brands

Companies with strong brands are highly prized by investors. This is particularly true for those selling fast-moving consumer goods. Brand loyalty and regular repeat purchases make for predictable and growing revenues, while premium prices make for high profit margins and returns on capital.

Reckitt Benckiser has been one of the best in the business for many years. It’s traded at times on a mid-20s earnings multiple, which I consider reasonable for a really top-notch operator in the sector. However, it’s fallen somewhat out of favour with investors of late.

At a current share price in the region of 6,500p, compared with nearer 8,000p at its peak two years ago, we’re looking at a rating of 18.3 times forecast 12-month earnings. If it were to re-rate to a mid-20s multiple, the share price would rise to 8,900p (37% upside from the current level).

I don’t think there’s been a change to the fundamental story that companies with high-quality stables of powerful consumer brands merit a high valuation. And I see a catalyst for Reckitt re-rating.

RB 2.0

Following the sale of its food business and acquisition of Mead Johnson Nutrition (MJN) in 2017, Reckitt embarked on what it called RB 2.0— the creation of two structurally independent business units: RB Health (incorporating MJN) and RB Hygiene Home. Implementation of this began at the start of 2018 and is expected to be complete by mid-2020.

RB Health’s brands include Nurofen, Gaviscon and Durex, as well as MJN’s infant formulas, while RB Hygiene Home has the likes of Air Wick, Cillit Bang and Finish. Now, I think these two business units housed under the same roof can do a perfectly decent job for investors. And new chief executive Laxman Narasimhan, who will take up the reins on 1 September, knows all about managing two different product categories. He comes from PepsiCo, which has a big snacks business in addition to its classic sodas and beverages.

However, I see a strong argument for progressing RB 2.0 to a full separation of RB Health and RB Hygiene into two independent companies. When such separations occur, we tend to see a heightening of management focus, entrepreneurial drive and growth in the two unleashed businesses, with a higher valuation being the happy consequence for shareholders.

Reckitt’s chairman Chris Sinclair has said, the company, “will continue to evaluate opportunities to maximise shareholder value from RB2.0” — which suggests to me the option of a full split is certainly very much on the table. I’d be happy to buy Reckitt’s shares today at 18.3 times earnings, for the company as it is. But I think a demerger or other break up of the business is on the cards, producing a valuation uplift that will reward investors at today’s share price with strong returns.

The post Another FTSE 100 share whose hidden value I think will be outed appeared first on The Twelfth Magpie.

More reading

• Start buying shares with just £20 a week? Here’s how even that could help someone build wealth
• Here’s how putting £800 a month into a Stocks and Shares ISA from age 27 could fund a £2m retirement!
• Relying on the State Pension for retirement? Here’s why it might not be enough
• 3 beaten-down FTSE 100 shares to consider buying and holding for a decade
• How much would you need in a SIPP to replace a £3,000 monthly salary?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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, there is a risk of paper losses in the short term. That’s especially the case at the present time, with the world economy currently facing an uncertain period due to the prospect of a global trade war.

However, with the index appearing to offer a wide margin of safety, now could be the right time to buy these two large-cap stocks. Both of them could deliver high returns that, when purchased within a diversified portfolio, may increase your chances of making a million.

Reckitt Benckiser

The growth potential for consumer goods companies such as Reckitt Benckiser (LSE: RB) appears to be exceptionally high. The company has been able to position itself within a number of emerging markets in order to capitalise on the rising wages that are leading to increasing demand for a wide range of consumer products. This may produce a tailwind for the business over the coming years and lead to a robust and fast-growing bottom line.

Since Reckitt Benckiser has a wide range of brands within its portfolio, its overall risks are reduced to some degree. Meanwhile, a recent restructuring seems to have improved the company’s efficiency, and may allow it to maximise its profit potential.

Although a change in CEO planned for September could lead to a refreshed strategy over the medium term, the company has a strong position in a variety of markets that may catalyse its stock price over the long run.

Rolls-Royce

Also offering high long-term growth potential is aerospace and defence business Rolls-Royce (LSE: RR). It is currently putting in place a revised strategy that is expected to improve efficiency and productivity through creating a leaner business that is more able to react to changes in demand across its key markets. As part of this, it has rationalised its asset base, while also reducing headcount.

Over the medium term, the company is expected to deliver improving free cash flow that may allow it to reinvest in its growth opportunities. With rising demand for defence products and services, as well as an ever-increasing number of aircraft in our skies, the prospects for the wider aerospace and defence industry could be bright.

Certainly, the recent ramp-up in the global trade war could naturally hold back the share price of Rolls-Royce to some extent. But, for long-term investors, the current uncertainty across the wider FTSE 100 may provide a buying opportunity. As such, now could be the right time to buy a slice of the stock, with its current management team appearing to have put in place a sound growth strategy.

The post Why I think these 2 FTSE 100 stocks could help you become an ISA millionaire appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

Peter Stephens owns shares of Reckitt Benckiser and Rolls-Royce. The Motley Fool UK has no position in any of the shares mentioned. 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.