There’s still a lot of investing uncertainty for FTSE 100 stocks today. But there’s no denying that the improved outlook for the global economy has helped steady the index.
Global economy set to improve
The International Monetary Fund forecasts that the world economy will grow by 5.5% in 2021. Even though it has slightly reduced its forecast, this is a significant improvement over the decline in the gross domestic product (GDP) in 2020.
An investing strategy
I think this is a good time to invest in stocks of companies with significant global interests. The two biggest country economies – the US and China – are slated to see particularly robust growth. While the US is expected to grow by 5.1%, China’s growth is seen at 8.1%.
The way I’d do it is this. Both economies are likely to splurge on public spends this year. I think two kinds of companies will see a turn of fortunes because of this – mining companies and construction firms. The reason is that physical infrastructure creation calls for both raw materials and expertise in building it.
FTSE 100 miners to benefit
The good news is that a number of FTSE 100 companies fall under both these categories. There are at least three multi-commodity miners that I like. These are Anglo American, Glencore, and Rio Tinto. I think infrastructure spending alone could buoy their share prices and finances for the foreseeable future, but there are more reasons to like them. I believe environmentally friendly companies are the future, and these firms are taking steps in the right direction.
Anglo American has made it one of its strategic priorities. Its acquisition of polyhalite miner Sirius Minerals last year may even be a step in this direction. Rio Tinto has reported finding lithium, which is used in electric vehicle cells, and Glencore is producing cobalt now.
While their long-term future is heartening, the bigger risk in 2021, I think, is new coronavirus variants. No public spending can help, or even take place, if most economic activity is deemed hazardous to health, including construction.
FTSE 100 construction companies with US interests
There are two FTSE 100 construction companies that also have strong US interests. One is Ashtead and the other is CRH. It’s no surprise then, that both stocks’ prices are presently at all-time highs. This is despite the fact that their financials have suffered in 2020 because of the pandemic.
I don’t think a choice is necessarily required, but if I have to make one, I’d put my bet on CRH for two reasons. One, its US interests are bigger than those of Ashtead’s in terms of revenue share. And its earnings ratio is less than half that of Ashtead’s, at around 12 times right now. For this reason, I think its share price can rise far more.
Much like in the case of the miners, construction biggies also face the threat of prolonged lockdowns. Their financials have already suffered, and if 2021 doesn’t quite play out like we think it will, the result could be disappointing. For now though, I see more upside to them.