Despite the index’s recent rise, there are a number of FTSE 100 stocks that could offer long-term capital appreciation potential. Their strategies, the prospect of improving industry conditions and relatively weak investor sentiment could combine to produce favourable buying opportunities.
Clearly, defining which companies are among the best UK shares to buy now is very subjective. Furthermore, there are always risks ahead for every company that could derail their performances.
However, from a risk/reward perspective, these three large-cap shares could offer investment potential within a Stocks and Shares ISA over the long term.
A recovery opportunity among FTSE 100 stocks
The prospects for banks such as Lloyds remain relatively uncertain compared to many FTSE 100 stocks. Low interest rates and a weak economic outlook could harm their potential to deliver profit growth in the coming months, and even years.
However, the bank’s valuation could reflect the risks it faces. For example, it trades on a forward price-to-earnings (P/E) ratio of 7. Furthermore, it has implemented various measures to improve its financial prospects, including cost reductions. The possible return of its dividend in the current year may also gather interest from passive income investors.
A defensive play among UK shares
Defensive FTSE 100 stocks could hold significant appeal due to the challenging economic outlook. Although British American Tobacco faces risks including declining cigarette volumes, it could potentially overcome such threats due to price rises for its products and its plans to invest in reduced-risk products.
The stock currently has a dividend yield of 8.5%. This is significantly higher than many UK shares, and could make it one of the best income opportunities available. Furthermore, its improving financial position and defensive characteristics may mean it offers greater stability and reliability, in terms of paying its dividend in a low interest rate environment.
Online retail opportunity
Tesco could be another buying opportunity among FTSE 100 stocks. Its investment in online retailing appears to be paying off, with consumers increasingly shifting their spending towards digital channels.
Weak consumer confidence and slow GDP growth could hold back its progress. They could prompt shoppers to become more price conscious. However, the company could outperform other UK shares because of its efficient structure, use of innovative new technology, and the strong loyalty it enjoys via its Clubcard scheme.
Investing in the best FTSE 100 stocks today
Clearly, defining which are the best UK shares to buy today is very much open to debate. Different investors will have very different views on the topic of which FTSE 100 stocks could outperform the index in the long run.
However, by building a diverse portfolio of shares to reduce overall risk, it may be possible to pick out undervalued companies that can deliver strong returns in the coming years.
