With the UK stock market struggling recently, I think it’s been a good time to look at the best stocks to buy now. With inflations concerns increasing, I’ve been thinking about how I’d invest my next £2,000 in FTSE 100 companies and which ones they’d be.
One of the best stocks to buy now
The orthodox opinion is that stocks won’t do that well if inflation persists. However, some stocks will do better than others – especially long term. I think that whatever happens, a company with strong margins and pricing power should do well. That’s why I’m keen to add more to my holding in fast-moving consumer goods (FMCG) group Reckitt (LSE: RKT).
Reckitt has always had good margins and pricing power and I expect them to normalise as the economy recovers after they took a hit in 2020.
I think it’s smart to focus on having fewer brands, but marketing them more strongly. The big market share of its brands probably means high customer loyalty and repeat sales, which is good for revenues and profits.
By generating sales all over the world, Reckitt is not overly exposed to any one country or region. To me, this makes it less risky than less globally-focused companies.
The fact that expectations are quite low because of the underperformance in recent years could give management a chance to shine. If investors warm to a strategy for future growth, the share price could do really well.
Possible headwinds
The share price could also face some headwinds, however. One might be the sale of the China baby formula unit, which the current CEO’s predecessor overpaid for, but that could have contributed a lot of topline growth.
Another headwind could be a slowdown in the buying of cleaning products, if people become more relaxed about the hygiene as the pandemic eventually recedes. Reckitt sold a lot of its cleaning product in 2020, making it harder to achieve year-on-year growth this year as things return to normal.
Yet its pricing power, strong brands and relatively cheap share price, combine to make Reckitt potentially one of the best stocks to buy now for me. I’ll likely add to the position I already hold in the company.
Another FTSE 100 company I like
The other group I’m thinking about adding to my portfolio is stockbroker Hargreaves Lansdown (LSE: HL). For a FTSE 100 company it has quite strong growth credentials. Operating profit went from £198m in 2015 to £377m in 2020.
The shares have always had a high P/E, but at 28, that’s broadly in line with what it has been historically. High margins, fast revenue and operating profit growth, and high returns on capital employed all combine to make me think Hargreaves Lansdown is a quality business. That’s why I think it’s one of the best stocks to buy now, especially for the long term.
The downside, obviously, is the P/E, so there’s a valuation risk there. Also, the company has suffered some reputational damage given that it promoted Neil Woodford’s failed funds. But the quality for me far outweighs these risks and I may add it to my own portfolio.