As the outlook for the UK economy has been improving over the past few weeks and months, I’ve been looking for FTSE 100 stocks to add to my portfolio to take advantage of the economic rebound.
Here are three blue-chip companies I’d buy for my portfolio in May.
FTSE 100 stocks to buy
The first FTSE 100 stock I’d buy in May is homebuilder Taylor Wimpey (LSE: TW). The housing market is currently the strongest part of the UK economy. This seems unlikely to change. The market remains structurally undersupplied, and builders can’t construct dwellings fast enough.
Even if house prices start to stagnate, the demand for new homes should help Taylor Wimpey grow over the next few years.
But the main risk facing the company is the potential for higher costs. This could weigh on profit margins and reduce profitability. A fall in home prices would also sap demand and could cause a headache for Taylor.
Even after taking these challenges into account, I’d buy the stock for its income and growth potential. In the past, management has returned excess profits to investors with dividends.
Economic recovery
The second FTSE 100 stock I’d buy is NatWest (LSE: NWG). Formerly known as Royal Bank of Scotland, NatWest is one of the country’s largest banks. As such, its fortunes are tied to the UK economy.
Therefore, as the economy improves, I think the bank’s profits should rise. NatWest also seems to have put the worst of its financial crisis troubles behind it. While the government is still its largest investor, its balance sheet is one of the strongest of all European banks. I think this bodes well for future cash returns.
Unfortunately, as one of the country’s largest banks, the lender may suffer if the economic recovery doesn’t live up to expectations. I think this is the most considerable risk facing the stock right now. Low-interest rates could also depress profit margins for some time to come.
Despite these risks, I’d buy the FTSE 100 stock for my recovery portfolio in May.
Reopening trade
Whitbread (LSE: WTB) is one of my favourite FTSE 100 reopening stocks. The Premier Inn owner lost a staggering £1bn last year as sales tumbled more than 70%.
However, the company forecasts a “significant bounce” in leisure demand over the next few months in the UK. To that end, it’s investing £350m this year to refurbish its properties and market to consumers.
Considering that analysts believe consumers have put away nearly £200bn in savings over the past 12 months, I think Whitbread is right to expect a bounce. And with foreign holidays still banned, the company’s sales may even surpass pre-lockdown levels as UK consumers stick to staycations.
Considering this potential, I’d buy the FTSE 100 stock for my portfolio in May.
The main risk is the potential for another coronavirus wave. This could lead to another lockdown, which Whitbread may not survive. So, considering this worst-case scenario, the stock might not be suitable for all investors.
