If I had £10k to invest in FTSE 100 stocks for 2020, Associated British Foods (LSE: ABF) would have to be one of the first I’d add to my portfolio.
The ingredients business and owner of the Primark value fashion brand, has gone from strength to strength over the past 10 years. It doesn’t look as if the firm is going to slow down anytime soon.
City analysts expect ABF to report earnings growth of 10.2% for 2020, followed by growth of 7.3% for 2021. Based on these projections, shares in the diversified business are dealing at a 2021 P/E of 15.9, that’s around 40% below the stock’s five-year average valuation of 25. The stock also supports a dividend yield of 2%.
One of the great things about the group is its ownership structure. The company is still majority-owned by its founding family. So, by investing in the business, you can be safe in the knowledge you’re investing alongside other long-term owners who want the best for the company.
Defensive investment
Alongside ABF, I’d also buy defence contractor BAE Systems (LSE: BA) if I had £10k to invest in FTSE 100 stocks right now.
BAE is currently in the middle of a growth spurt. According to the City, earnings are projected to expand by around 33% over the next two years after several years of anaemic growth. On this basis, the stock is trading at a 2020 P/E of 11.5. It also supports a forward dividend yield of 4.3%, just below the FTSE 100 average of 4.5%.
One of the great things about BAE as an investment is its forward earnings clarity because the firm always publishes its order backlog alongside its results. At the end of the first half of 2019, this figure stood at £47bn, equivalent to around 1.5 years worth of revenue for the group.
This figure gives investors some certainty over the firm’s growth targets and dividend potential. And BAE’s dividend security is one of the main reasons why I like it as an investment.
Market growth
The third and final FTSE 100 stock I’d buy with £10k today is Mondi (LSE: MNDI). This packaging and paper company has seen the demand for its products boom in recent years, thanks to the ever-expanding e-commerce market.
Indeed, Mondi’s earnings per share have grown at a compound annual rate of 17% over the past six years, as net profit has more than doubled from €386m to €830m.
Unfortunately, City analysts are expecting the group’s growth to slow over the next two years. In fact, analysts are expecting a decline in earnings, from €2 per share in 2018 to €1.6 for 2020.
While disappointing, I think this could be an excellent opportunity to snap up shares in this leading packing producer at a discount price. The stock is trading at a forward P/E of just 11.4 and also supports a dividend yield of 4%.
With the payout covered 2.2 times by earnings per share, it looks as if this distribution is here to say and has room to grow.
