Two FTSE 100 shares I’d buy for the recovery in 2021

2020 was a year of disasters in the FTSE 100 and elsewhere in the UK stock market. However, as vaccines are rolled out over the coming months, 2021 should be defined by recovery across the board.

There are two FTSE 100 companies I’ve been thinking about recently that hit pretty brutal lows during the pandemic. I’m hoping that Lloyds Banking Group (LSE:LLOY) and Rolls-Royce (LSE:RR) are in for a good year. 

Banking on Lloyds

On February 20, the share price of FTSE 100 banking group Lloyds was 57p. It dropped to 28p in less than two months, and continued to decline until it hit its lowest price since 2012 (24p) on September 21. Soon after, November’s vaccine announcements helped the company head back towards its current price of 36p — already a 50% increase. 

And there are many reasons to look to Lloyds for 2021 growth. The most obvious, to me, is that this price seems to be a bargain: it’s trading at roughly 10x its earnings. This means that a long-term investment could eventually be rewarding.

On top of this, the company was able to return to profit by the end of 2020. Its Q3 results showed an impressive profit of £1bn, before tax. This contrasts with the £602m loss the bank reported in Q2. Its Q4 results will be revealed on February 24, and will likely reveal further profit. 

Finally, alongside its FTSE 100 banking competitors, Lloyds was instructed to pause its dividend in 2020. After many rocky months for investors with a focus on passive income, it’s looking like the bank will be able to pay out once again this year. My colleague Rupert Hargreaves has suggested a possible dividend yield of between 7%-8.2%. This would be an increase on the 5.3% yield from the start of 2020. 

Recovering with Rolls-Royce

Back in November, I thought Rolls-Royce was a FTSE 100 stock suitable only for those looking for a little risk. At the time, the world-famous engine-maker was trading at around 100p and as I write today, it’s hovering in a very similar place.

But with more planes flying at some point in the hopefully-near future, more planes are going to need engines and repairs. In turn, the company should be able to bring in more money and the Rolls-Royce share price should return to form alongside the airline industry and the FTSE 100 as a whole.

It has already expanded its presence in the defence sector, recently providing the German Air Force with 56 engines. At the same time, its £9bn in liquidity leaves it in a strong, stable position, and the fact that the third UK lockdown didn’t really impact its price provides further proof of its resilience. Its P/E ratio sits at 19.13. 

There is, of course, still risk to be found within this FTSE 100 company. For example, it is expected to report a negative free cash flow for 2020 of £4.2bn. This is disastrous compared to its previous prediction of £1bn for the year. 

That said, even if its share price only returns to pre-pandemic levels – around 200p – I’d double my money. And that’s without even thinking about its potential for continued growth when Covid-19 becomes a distant memory, or its current (admittedly somewhat underwhelming) dividend yield of 1.51%. 

Lloyds and Rolls-Royce are two of my personal favourite FTSE 100 shares in 2021. Rolls-Royce is admittedly still slightly riskier, but I feel Lloyds is a no-brainer.