I think the best stocks to buy now are companies that have faired well over the past 12 months. Since the pandemic started, a clear divide has emerged between FTSE 100 winners and the losers.
Of course, there’s no guarantee this performance will continue. If the global vaccination programme starts to yield results, the tailwinds that helped these businesses outperform throughout the pandemic may recede. That could lead to reduced growth.
However, the additional profit generated over the past 12 months may allow these corporations to put more money back into their operations, invest in new products and increase advertising.
This potential for investment is one of the key reasons why I think the companies below could be some of the best stocks to buy now, despite the risks they may face.
The best stocks to buy now
Two of the top-performing investments in the FTSE 100 over the past 12 months were tech champions Ocado and Just Eat. Both have prospered in the pandemic and are expected to report a substantial increase in revenue for 2020. Just Eat has already said it expects to report revenue growth of more than 50%.
I think it’s unlikely this kind of growth will continue in 2021. Both companies face significant challenges as we advance, such as increased competition and rising labour costs. If other hospitality businesses are allowed to re-open later in the year, they may also see reduced demand from customers.
However, over the past 12 months, they have proven that their business model can work. That’s why I think they’re some of the best stocks to buy now. If they can build on this growth, and overcome potential challenges, I’d buy them today.
FTSE 100 value
Warehousing company Segro is also on track to report strong growth for 2020. The organisation operates big warehouses, which are in high demand at present as firms develop the infrastructure required to meet rising online sales.
The retail market has changed significantly since the beginning of 2020. I don’t think it’s ever going to go back to the way it was, which suggests the high demand for e-commerce fulfilment facilities is here to stay.
That said, the group isn’t without its challenges. Many property businesses have got into trouble by borrowing too much and over-expanding. Segro isn’t immune to this risk. If rental prices collapse, the company may also struggle to meet its interest obligations on borrowings. So, while I’d buy the stock today, I plan to keep a close eye on its leverage.
As I mentioned at the beginning of this article, the big risk that companies who’ve prospered in the pandemic face over the next 12 months is a return to some sort of normality. With that in mind, I also think GlaxoSmithKline and AstraZeneca are some of the best stocks to buy now.
These FTSE 100 pharmaceutical businesses are highly defensive. That suggests they should continue to grow after the pandemic. Consumers will always need healthcare, although there are risks.
Issues such a the so-called ‘patent cliff’ (when a firm’s patents expire, opening them up to competition) and lawsuits have hurt profitability at these firms in the past and could do again in future.
Still, due to the healthcare industry’s nature, I’d buy these businesses.