News that coronavirus vaccines have been developed has resulted in an incredible stock market rally. This month, the FTSE 100 index is up about 15%.
If the vaccines are the ‘game-changers’ they’re said to be, share prices could keep rising. With that in mind, here are two FTSE 100 stocks I’d buy for a potential market recovery.
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Capitalise on the FTSE 100 recovery
One FTSE 100 stock that strikes me as an excellent recovery play is alcoholic beverages company Diageo (LSE: DGE). It’s the owner of a wide range of well-known spirits brands such as Johnnie Walker, Tanqueray, and Smirnoff.
Diageo has faced plenty of challenges this year due to the coronavirus. With pubs, bars, and restaurants across the world shut due to lockdowns, its ‘on-trade’ sales have taken a hit.
The successful roll-out of a vaccine however, would improve the company’s outlook significantly. It’s worth noting that since news of the Pfizer vaccine broke, a number of brokers, including HSBC and Jefferies, have increased their price targets for Diageo substantially.
I’ve been buying more Diageo shares for my own portfolio recently as I’ve seen the Covid-19-related share price weakness as a buying opportunity. My last purchase was around a month ago near £25. Since then, the stock has jumped about 18%. However, I still see value here. Currently, the stock remains about 17% below its 2019 highs. And the forward-looking P/E ratio of 23, while not cheap, isn’t excessive for a company with Diageo’s track record.
All things considered, I think Diageo is a good stock to buy to capitalise on a potential FTSE 100 rebound.
A stock market rally could push this stock higher
Another FTSE 100 stock that could benefit from a market rebound is St. James’s Place (LSE: STJ). It’s a wealth management company that, through a network of nearly 4,300 advisors across the UK, offers face-to-face financial advice to individuals and businesses. It earns much of its income from funds under management, meaning a stock market rally could push earnings higher.
A recent trading update from St. James’s Place was quite encouraging. Not only did the group report funds under management of a record £118.7bn, up 1.5% year-to-date, but it also said funds under management retention rate for the year was a high 96.4%.
On top of this, CEO Andrew Croft said the group is seeing an increasing demand for sound, highly-personal financial planning advice (a trend I’ve highlighted before). He also said the group remains “extremely well positioned to meet this opportunity” and to “drive further growth over time.”
STJ is forecast to generate earnings of 48.3p per share next year, which puts the stock on a forward-looking P/E ratio of about 21.9. A prospective dividend yield of around 4% is on offer. I see these metrics as attractive.
With the FTSE 100 stock still around 13% below its 2020 high, I’d buy today.