The FTSE 100 has risen by nearly 25% over the last year, but it’s still lower than it was in January 2020. I reckon the big-cap index still contains some great stocks to buy now, with the potential to deliver long-term gains.
Here, I’m going to look at two very different FTSE 100 companies I’d like to buy today.
Powering up for growth
Utility stocks aren’t usually associated with growth. But the switch from oil & gas to renewables over the coming years is expected to drive a big increase in electricity consumption. Electric cars alone could require significant amounts of extra power.
The FTSE 100 stock I’d buy to profit from this opportunity is National Grid (LSE: NG). The UK’s main grid operator is tilting its portfolio towards electricity by selling some gas assets and acquiring electricity operations.
The end result should be that 70% of National Grid’s assets will be in electricity by the end of 2022. Management believes this shift in focus will support stronger support for the dividend and greater long-term growth. I agree.
Given the market’s enthusiasm for electric car companies and other such businesses, you might expect National Grid shares to look expensive. I don’t think they do. At current levels, the stock offers a 5.3% dividend yield that’s expected to rise in line with inflation.
The main risk I can see to the dividend is that National Grid’s financial model might be disrupted if inflation or interest rates rise more quickly than expected. I don’t know how safe the dividend would be in that scenario.
Despite this concern, I’d be happy to buy the shares today for reliable income and steady long-term growth.
FTSE 100 fashion bid target?
Luxury fashion brand Burberry Group (LSE: BRBY) is unusual for a couple of reasons. First, it’s listed on the London Stock Exchange (not in Paris or Milan). It’s also an independent brand, in a world where most big luxury names are part of larger groups.
I wouldn’t buy Burberry just for its takeover potential, but I do think this FTSE 100 share could receive a bid at some point in the future. In the meantime, there are several other reasons why this luxury stock is on my shopping list today.
To start with, I think Burberry shares could be cheap right now. The market was spooked recently by news that chief executive Marco Gobbetti is leaving to take a up a position in his home country of Italy. The fear is that highly-rated chief designer Riccardo Tisci might leave too.
There’s no sign Tisci plans to leave just yet. But the shares are still down by around 15% from the level they were trading at before Gobbetti’s departure was announced.
That’s left the stock trading on around 20 times forecast earnings, with a 2.5% dividend yield. I think that’s a fair price, given Burberry’s high profit margins and valuable brand.
City analysts expect the group’s sales and profits to return to 2019 levels this year, with further growth next year. If the company can deliver on these forecasts, then I think the shares should perform well from here.
I’d be happy to buy this FTSE 100 stock for my portfolio today.