As the vaccine rollout allows the UK economy to start planning for the future, I’ve been searching for shares in the FTSE 100 index to buy right now. I believe a few of companies have recently fallen on hard times but could generate outstanding returns for investors in the long run. Here are the top five picks I’d buy today.
FTSE 100 index stocks
The first FTSE 100 company I’d buy is the international banking group HSBC. Like most banks, this company has been under pressure over the past 12 months. Falling interest rates and rising loan losses have crushed profitability. However, as the global economy moves on from the crisis, I think financial businesses like HSBC could see a significant uplift in sales and profitability.
That’s not to say the group isn’t without its risks. Low-interest rates and rising loan write-offs remain a challenge for the organisation. HSBC may also face challenges negotiating the deteriorating relationship between China and the West.
Despite these risks, I’d buy the stock because I think it’s one of the best FTSE 100 companies to play the global economic recovery.
Commodity plays
Two other companies I’d buy to invest in the global economic recovery are commodity producers Glencore and Rio Tinto.
An economic upswing should increase the demand for essential commodities such as coal, copper and iron ore. This may translate into rising commodity prices, which may boost profits at Glencore and Rio.
However, commodity prices can fall just as fast as they rise. As such, these businesses are relatively high-risk ways to invest in the economic recovery. If commodity prices suddenly slump, shares in Glencore and Rio could collapse.
Nevertheless, I’d buy shares in both of these companies considering their recovery potential.
UK housing
While some investors might feel comfortable buying FTSE 100 recovery plays such as IAG, I think these businesses will continue to face challenges for the next few years.
Instead, I’d rather own companies such as Taylor Wimpey and Barratt Developments, which have been impacted by the pandemic but have also been able to continue a limited level of service.
What’s more, some markets such as travel and tourism may take years to recover. On the other hand, the UK housing market is booming, and a lack of supply suggests this trend will continue. Low-interest rates are also supporting the market.
The most considerable risk these companies face is an increase in interest rates. This could well happen if inflation starts to take off over the next year or so. Rising costs could also weigh on profit margins, which may hurt cash returns to shareholders.
Considering these risks and challenges, I’d buy both Taylor Wimpey and Barratt Developments for my portfolio today as FTSE 100 recovery plays.
