If I had £3,000 to invest in FTSE 100 shares, I would start by running the rule over the following three stocks. They have made it through the pandemic in decent shape, and look like strong long-term buy-and-holds to me.
Defence manufacturer BAE Systems (LSE: BA) has long been one of my favourite FTSE 100 shares. It looks cheap trading at just over 11 times earnings, and that offers me a tempting buying opportunity. Its civil aerospace division, which makes parts for Boeing, was hit hard by Covid travel bans, but a more robust defence market has compensated. Globally, military spending is expected to rise 2.6% this year.
Management now expects profits to increase by more than 10% this year, with revenues up 5%-7%. The defence and aerospace engineer looks like a key portfolio hold, offering both capital growth and income. It has quickly restored its dividend, after cutting it during the first lockdown, and now offers a yield of 4.7%, covered 1.9 times by earnings.
I’d buy these three FTSE 100 shares
One worry is that commercial aviation still faces strong headwinds, hitting demand for plane parts. Supply chain interruptions could push up costs. Net debt has jumped from £743m to £2.7bn, after the company paid down its pension obligations. I’m not too worried by that, though, and would happily invest £1,000 in BAE Systems today.
I think there are some tempting FTSE 100 shares in the housebuilding sector too, notably Vistry Group (LSE: VTY). It has enjoyed a rip-roaring six months, its share price rising 50% in that time. The five-year figure is a more modest 34%.
Inevitably, Vistry has benefited from the UK house price boom. This was reflected in recent strong underlying pre-tax profits of around £325m, outstripping guidance of £310m. Weekly private sales are up 21% on last year. The group has restored its dividend and yields 3.9%, with cover of 2.4 giving scope for further growth. Yet the market values the stock at just 10.7 times forecast earnings.
I’d buy these shares for the long term
The UK housing rally cannot go on forever, and prices could slow after the stamp duty holiday and furlough schemes expire. The rising costs of materials are also a worry, but this remains one of my favourite FTSE 100 shares and I would invest £1,000 in it today.
Global spirits giant Diageo (LSE: DGE) has been one of the most reliable FTSE 100 shares of recent years. Management now predicts 14% operating profit growth, following a “good recovery” in its prime North American market. It will reward investors by resuming its £4.5bn share buyback and special dividend programme, even though the travel ban continues to hit duty-free sales.
This could be a little premature, given that the company’s net debt is at the top end of its intended range. Another concern is that the stock isn’t cheap, trading at 29.2 times forward earnings. I don’t normally buy FTSE 100 shares with such a high valuation, but I’m happy to make Diageo an honourable exception.