Cannabis shares are very popular in the US and Canada just now and UK investors are looking to get in on the act. However, with cannabis use still illegal in the UK, it’s not something that FTSE companies are specialising in… yet. But we at the Motley Fool like to take a long-term view so are there any FTSE 100 shares that could help us profit from the trend in the years ahead? I think so.
Next-generation diversification
One UK-listed giant has already dipped its toe in the water. Imperial Brands (LSE:IMB) is a well-known tobacco company diversifying into next-generation products as the demand for traditional tobacco products weakens. Last year it invested in biopharma company Oxford Cannabinoid Technologies and this summer it invested £75m for a 20% stake in Canada’s Auxly Cannabis Group. Auxly will now be able to use Imperial Brands’ vaping technology for cannabis use and develop a portfolio of new vapour products and brands.
IMB is a FTSE 100 firm with a £20bn market cap and I think this gentle introduction to the cannabis arena will give it a competitive edge if cannabis ever becomes legalised in Britain. Last year, the UK law relaxed slightly regarding the medical use of marijuana, which can now be prescribed legally to certain patients.
Buying Imperial Brands now would give investors access to a dividend yield close to 10%, with the firm having a trailing price-to-earnings ratio of 12.9. Its current share price is below analysts’ expectations and trailing earnings-per-share is £1.62. Whether you are interested in its association with Cannabis, or not, these are great financials today for a potential stock investment.
Big oil, sad planet
It’s no secret that oil companies have long been the enemy of environmentalists, which makes investing in them a moral dilemma for many.
There is also no getting away from the fact that oil has caused significant damage to the planet. However, perhaps some oil companies are also to be thanked for the inroads being made into alternative fuel research as they work to future-proof their businesses.
Although it may be hard to believe, BP (LSE:BP) was at the forefront of moving beyond petroleum long before its devastating Gulf of Mexico oil spill in 2010.
BP has funded wind, solar, hydrogen and other biofuel technologies and research and, as a matter of course, it routinely publishes its sustainability reports.
Recently BP agreed to form a sugar cane ethanol joint venture in Brazil with US agricultural trader Bunge in a bid to produce more environmentally-friendly fuel stocks for transportation. CEO Bob Dudley said of this: “Biofuels will be an essential part of delivering the energy transition, Brazil is leading the way in showing how they can be used at scale, reducing emissions from transport.”
For potential investors, BP looks good. It has a price-to-earnings ratio of 11.2 and earnings-per-share of 44p. Its dividend yield is an excellent 6.9% and although it has a debt ratio of 64%, this is covered by its operating cash flow and management intends to sell $5bn of assets by the end of this year.
Personally, I find both FTSE 100 companies fascinating, with their 100-year-plus histories and sustained success. They each pose moral dilemmas to shareholders, but for long-term income investments, I deem both a Buy.