Imperceptible as it is, the FTSE 100 index has been on the rise in 2021. In fact, brakes could come off the index’s growth in the near future making the rise more obvious.
Better times ahead
The UK is slowly but surely coming out of its third lockdown. In another three months, we will be much closer to pre-pandemic times once again.
This means that languishing business segments like bars, restaurants, hotels, cinemas, fitness centres, events, airlines, coaches…the list is endless, will all be back in the game. This of course, is good news for the economy and FTSE 100 stocks.
With the Brexit trade deal done and the UK’s speedy vaccination drive, the UK economy could well see a so-far-withheld growth bounceback. Last week the OECD upped its forecasts for the UK economy. Then this week, the Bank of England turned upbeat on the economy too.
I am now, more than before, looking to invest in FTSE 100 stocks with strong growth potential. However, since we are not out of the woods yet, I am considering growth stocks with different risk levels.
Here are three of them:
#1. Low-risk: Diageo
The FTSE 100 alcohol producer Diageo (LSE: DGE) has the advantage that alcohol demand remains largely resilient even in bad times.
So its net sales are down 4.5% for the half-year ending 31 December 2020, and its operating profits are down 8.3%, which is way better than the impact on Covid-19 affected sectors.
And the future looks bright. With outdoor entertainment expected to be back in business soon, Diageo’s sales can rise. The company has made expansion plans too, spending $80m in the US to increase production of ready-to-drink beverages.
The one downside to Diageo is its high price-to-earnings (P/E) ratio of 63 times. This can result in a short-term price fall, though over a longer time, I think it will continue to rise.
#2. Medium-risk: Persimmon
The FTSE 100 housebuilder Persimmon is another growth stock I like. Its share price has trended upwards in the past year in line with a housing market on fire.
Buoyed by supportive government policies, Persimmon has benefited in an otherwise bad year. However, policies like the stamp duty waiver will have run their course before the end of 2021, which could impact property developers negatively. Because of this policy dependence, I think of it as a higher risk growth stock than Diageo.
There is of course a possibility that by the time supportive policies are withdrawn, the economy has already taken off. This would continue to support Persimmon’s demand beyond 2021, returning it to its pre-pandemic growth path.
#3. High-risk: InterContinental Hotels Group
FTSE 100 hospitality company InterContinental Hotels Group is now trading at pre-pandemic highs. With its share price having all but forgotten its disastrous 2020, I cannot help but consider it as a growth stock to buy. Further, demand should start improving as the Holiday Inn owner sees the return of business this summer.
It is still risky though. The company’s financials turned pretty ugly last year. With the pandemic not entirely over, it remains to be seen how long it will take to get back on its feet.