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2 blue chip FTSE 100 shares to buy for the market recovery

Suraj Radhakrishnan — Thu, 10 Mar 2022 15:30:26 +0000

Since January, we have witnessed a mini tech crash, inflation pressures, and the invasion of Ukraine. For investors, a volatile period like this can be stressful. But with the FTSE 100 down over 5% this year, I think it is a great time to finally invest in those premium blue-chip stocks that always seemed too expensive. Here are the two picks that I’d add to my portfolio in a heartbeat.

British industry leader

Blue-chip stocks are generally the biggest and most consistent and reputable companies listed on an index. These companies usually have a huge market share and a strong history of investor returns. And in the past decade, Diageo (LSE:DGE) has embodied this better than most FTSE 100 companies.

The global alcohol giant owns huge names like Johnnie Walker and Guinness and has leveraged recent revenue to acquire huge local names across emerging alcohol markets. Sales have increased steadily year-on-year and the excess cash has been reused effectively. Diageo recently announced a £4.5bn share buyback to be completed by 2023.

Strong sales growth in China and India means the company now expects to add over 10mn loyal customers by 2030. Diageo also launched a US$75m carbon-neutral distillery project in China last year. I think this Asia push could allow the brand to sustain its current global dominance.

Diageo is currently trading at 3,432p, down 16% since the start of this year. Looking at the share price movement from the pandemic lows to the recent all-time high of 4,030p in December 2021, I think Diageo shows strong recovery potential.

Growing risk of regulation is the biggest concern for the alcohol sector right now. Health taxes could cripple the booming alcohol market which would affect its sales directly. Despite this concern, I think Diageo’s business plan and market share will help it retain its position as one of the most reliable FTSE 100 shares over the next decade as well. This is why I am planning on purchasing Diageo shares if it dips further.

Brand value

Consumer goods brand Unilever (LSE:ULVR) is the next blue-chip FTSE 100 share I’d buy right now. Much like Diageo, the UK giant owns a host of popular brands in its segment like Dove, Lipton, and Vaseline.

With growing inflationary pressures, I would like to add companies with pricing power, like Unilever, to my portfolio right now. If a company can pass on some of the excess costs to its consumer without losing a major chunk of sales, it almost ensures revenue growth even during turbulent periods. Unilever recently streamlined its operations and this move is expected to save about €600m over two years, which will fund its marketing and R&D wings. I think this will give it a long-term edge over smaller competitors who will struggle to offset revenue losses.

Going forward, the company expects 2022 sales growth to be between 4.5% and 6.5%. Given that this rate of growth is not earth-shattering, there is a risk of share price stagnation. Investors could opt to invest in more exciting sectors which would affect Unilever’s price action. The brand also faces stiff competition from the rise of generic alternatives and discount retailers. But being a well-established FTSE 100 consumer goods giant, I think Unilever is well placed to handle market volatility, which is why I think it is a prudent recovery play for my portfolio now.

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

2 FTSE 100 shares to buy for the recovery

Suraj Radhakrishnan — Wed, 08 Sep 2021 13:20:01 +0000

Part of my investment strategy is to identify sectors that could benefit from a distinct economic climate. As the UK economy heads towards recovery, these two FTSE 100 shares stand out as potential investments for my portfolio.

FTSE 100 retail share

The return of customers to malls and stores across the world is a promising sign for the retail sector. As a result, I expect companies that rely predominantly on store sales to benefit. This is why luxury fashion brand Burberry (LSE:BRBY) looks like an attractive pick for my portfolio.

I do not see the 8.6% drop in share price over the last month as a concern, but as an excellent buying opportunity. I believe Burberry is set up well for growth based on its robust financial performance.

Store sales have rebounded well in the first quarter of 2021, up 90% from July 2020. Despite a digital presence, the network of over 475 retail stores globally remains the main source of revenue for the company. The company expects the sales figures for 2022 to increase by £114m, which bodes well for my potential investment. Burberry was ranked tenth most valuable luxury brand in the world and is the only British company on the list.

The company has also established successful partnerships with fashion icons like Kendall Jenner. To me, this shows initiative to capitalise on the sector’s growing cultural importance. Despite concerns surrounding this FTSE 100 share, a quick recovery looks likely with prices increasing 5% in the last week. I expect steady returns from an investment in Burberry stock today.

UK defence giant

The recent news surrounding UK defence and aerospace companies subject to increasing bids from US competitors has put a spotlight on the sector. Ultra Electronics and Meggitt both are inching closer to takeovers by foreign-backed firms. This shows me a demand for UK’s impressive R&D in the field and BAE Systems (LSE: BA) is one FTSE 100 share that I’d buy to capitalise on the sector’s boom.

Global defensive spending grew by $1,981bn in 2020 and the Stockholm International Peace Research Institute estimates global spending to be around $2trn. This figure could increase steadily over the next decade which would boost BAE’s sales. The company also has an ongoing £1.3bn Eurofighter contract with Germany and signed a £2.4bn munitions contract with the UK which brings its order book value to £44.6bn. As a result, the first-half 2021 report shows an operating profit increase of 61% to £1.3bn.

When I look at BAE’s current share price of 552p, the stock is trading at a forward price-to-earnings (P/E) ratio of 10 times. This looks like a bargain to me given the market position and revenue figures of the company. The company also offers a dividend yield of 4.3% which is a handsome passive income stream for my portfolio.

My concern with an investment in the defence sector is a potential change in governmental regulations. National security concerns could halt overseas trade and deflect any potential bids. Also, BAE’s current debt of £2.74bn is slightly concerning. But, the large order book and growing importance of the sector lead me to believe that this FTSE 100 share could deliver strong returns over the long term.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.

2 shares to buy for the FTSE 100 recovery

Paul Summers — Thu, 29 Apr 2021 11:09:56 +0000

Tracking the FTSE 100 is an option for cautious investors wanting to buy shares in 2021. However, I think I can make better money buying those stocks that have the potential to gain the most from the ongoing market recovery.

Today, I’m looking at two examples from the top tier. As luck would have it, both reported on trading this morning.

Smith & Nephew

FTSE 100 medical technology company Smith & Nephew (LSE: SN) is first up. By contrast to other members of the index, its share price is still far off its pre-Covid-19 highs. Based on the reaction to today’s Q1 statement, I think time could be running out to acquire this company at a good price.

[fool_stock_chart ticker=LSE:SN)

At $1.13bn, revenue over the three months to 3 April came in 11.5% higher on a reported basis compared to the same period last year. While some of this is the result of currency tailwinds and input from acquisitions, CEO Roland Diggelmann reflected that surgery volumes were “moving towards more normal levels in many markets.“

Importantly, all three of S&N’s franchises (Orthopaedics, Sports Medicine & ENT and Advanced Wound Management) have bounced back to growth. Tellingly, a strong rebound in revenue in the Chinese market gives some indication of how business in developed markets might perform once Covid-19 is defeated.

Interestingly, S&N chose not to alter its 2021 guidance on revenue growth and profit margin today. I think this is prudent. After all, operations and treatments could still be impacted by a significant third wave in 2021, highlighting that no FTSE 100 stock is devoid of risk

With talk of “improving visibility” however, I’m tempted to believe we could begin to see the S&N share price really recover from here as postponed elective surgeries get the green light. A price-to-earnings (P/E) ratio of 24 looks punchy, but not after the potential growth is factored in. I’m sorely tempted to pile in.

Flutter Entertainment

To label gambling firm Flutter Entertainment (LSE: FLTR) a recovery play may sound strange. After all, its share price has already climbed 65% over the last year.

[fool_stock_chart ticker=LSE:FLTR)

However, like S&N, I’m inclined to think we could see more gains ahead, especially once the sporting calendar gets back to normal and retail betting outlets and stadiums are allowed to reopen.

Again, like S&N, today’s Q1 trading update made for very pleasant reading. Total revenue rose 32% to £1.49bn over the first three months of 2021. Unsurprisingly, the vast majority of this was online where player growth of 36% was also recorded.

Unlike its FTSE 100 peer, however, this news hasn’t been quite so well received. To me, this suggests that a lot of positivity was already priced in. After all, the betting operator’s shares were already changing hands for 50 times earnings.

A predicted rise in UK coronavirus infection rates may have brought forth some profit-taking. Investors may also speculate that people will be less inclined to place bets if they’re concerned about where levels of employment might be going once the full economic cost of the pandemic is realised.

That said, I think I’d be tempted to buy some Flutter today and add in bouts on any weakness. The growth opportunities, particularly in the US, are hard to ignore. Moreover, a price/earnings-to-growth (PEG) ratio of 1.4 isn’t excessive. Anything below 1.0 tends to be indicative of good value.

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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 Smith & Nephew. 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.

Bull market or bubble? What should we make of the super stock market recovery?

Paul Summers — Sat, 30 May 2020 08:00:28 +0000

The recent recovery in stocks has been as impressive as the speed of the crash that preceded it. Is this a resumption of the incredible bull market we’d all become rather too comfortable with, or will buying now result in tears and tantrums a few months down the line?

Here’s what I think we need to be asking ourselves.

1. What’s driving this ‘bull market’?

Naturally, there are a few things that have caused this incredible rally in stocks.

First, there’s the financial support instigated by governments around the world in the wake of the pandemic. The ‘whatever it takes’ message has hit home with employers and investors and, for now at least, they like what they hear.

Second, the coronavirus finally looks to be losing its grip. The number of people testing positive and/or dying has thankfully reduced as social distancing measures and lockdowns appear to have had the desired effect.

Third, the gradual lifting of restrictions has brought with it an inevitable wave of renewed optimism, particularly from those who think they were too draconian anyway, or simply want a proper haircut.

Fourth, the severity of March’s crash meant a big bounce was always possible. When everyone in the market seems to agree on something, you can be pretty sure it won’t last!

All this is well and good. The more important question for me, however, is whether the rally is sustainable.

2. Can it last?

Here’s where I start getting gloomy. Regardless of the reassuring platitudes made by those in charge, the financial support provided simply can’t last forever. Moreover, the world is still facing a significant global recession. Many companies will still go to the wall and many jobs will be lost.

We also need to look at who’s buying stocks right now. Based on what we’re hearing from the US, it’s new retail investors, not established professionals. This doesn’t make the former wrong, but it does make me suspect that at least a proportion of those buying now probably won’t be regular readers of company reports!

Knowing this, it’s worth questioning how many will be capable of holding their nerve when current expectations meet with hard economic data. To date, we’ve only been able to estimate the financial impact of the coronavirus. Over the next few months, we’ll see whether these predictions are anywhere approaching accurate. If they are, markets may hang on to recent gains. If theyre not, the recovery could be over.

Last, we need to consider whether the coronavirus will be gone after only a few months. As far as this is concerned, all I know is I don’t know.

3. Should we avoid buying?

Absolutely not! I’m a fan of buying whatever the economic weather, so long as I know I’m investing for years and my holdings are of sufficient quality. I’m talking about companies with great brands, big market shares, strong management, sound balance sheets, and large operating margins.

Having said this, I’m also reminding myself that no company is worth buying at any price. So, before clicking that ‘buy’ button, I’m thinking about whether the renewed market optimism is already priced in. For some stocks, I really think this is the case.

Bull market or bubble? My heart whispers the former. My head screams the latter.

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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.