A new year is almost upon us, making it a great time to set fresh new investing goals. I think a key goal to have (no matter what our age profile) is putting away some of our savings into quality companies that limit the risks of any erosion of capital — shares that offer quite the contrary, in fact. These can hold us in good stead whenever we might need to dip into our nest egg.
The good news is that there are many FTSE 100 companies that have offered great returns on capital over time. For a long-term horizon, my preference is tilted towards defensive sectors because they are less likely to fluctuate than their cyclical counterparts, and more than just being safe, also give a psychological sense of safety as they are steady in their share price rises.
Also, we don’t know what’s going to happen on the Brexit front in 2020, but the fact that uncertainty exists is reason enough to veer towards defensives that are already giving returns. There’s nothing that stops us as investors from tweaking the investing plan later on in the year if the wind starts blowing in favour of cyclicals.
Here are two of my top picks.
Pest control is a good business
The first is pest control and consumer staples provider Rentokil Initial (LSE: RTO). Just taking a look at the company’s share price chart over the last five years is a sight for sore investor eyes. Not only has it pretty much risen steadily throughout that time, the increase has been impressively steep, with 258% gains on capital in the last five years at the last count.
Its earnings faced something of a wobble in 2018, but the latest numbers show that it’s back on track and I find that reassuring. Its revenues have been steadily growing over the years, which is good news. Not only is its demand base unlikely to oscillate much given that it’s a must-have if consumers or businesses have a pest problem, its presence in international markets is a great Brexit hedge. The only catch here is that its share price has run up quite a bit during the year. so I will be watching out for a dip.
Growing healthcare needs
Medical devices manufacturer Smith & Nephew (LSE: SN) is another one I have highlighted not once, but twice already in recent weeks, because of a dip in its share price since October. But I like this firm as it has otherwise seen a steady increase over a number of years, much like RTO.
It’s true that the capital gains over the past five years haven’t been as high for SN as for RTO, but at 85%, they’re undeniably impressive too.
And remember, the healthcare segment is not just a defensive one, but is also one that’s seeing rising demand because of ageing populations in much of the western world and rising incomes in emerging economies. The fact that the share is still seeing a price dip is a good time to invest in it.
Neither Rentokil nor Smith & Nephew may be the kind of exciting shares that set pulses racing, but I find their steady returns hugely appealing in volatile times such as we live in.
