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Best stocks to buy now: how I’d invest £2K in the FTSE 100

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The FTSE 100 index is up 14% over the past 12 months. I believe this is a reflection of the UK economy bouncing back. With that recovery in mind, I’m thinking about how I would invest £2,000 in my portfolio. Here are two picks from my list of best stocks to buy now.

Best stocks to buy now, pick #1

Hikma Pharmaceuticals (LSE:HIK) manufactures generic, branded and injectable pharmaceuticals. In the past three months, the Hikma share price has increased over 13%, from 2,225p per share in March to 2,515p as I write. I believe this rise is due to favourable results as well as increased demand for Covid-19 medication.

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Hikma’s full-year results for 2020 were impressive. It reported a 23% increase in operating profit, and revenue increased too. Hikma believes it will continue this trend in 2021 too. A trading update released at the end of April for the start of 2021 backed up this prediction. Although it did not provide specific financials, the FTSE 100 incumbent did confirm the launch of 30 new products and said results were “in line with expectations”.

Most of the stocks on my best stocks to buy now list pay a dividend. Hikma’s current dividend yield stands at just less than 2% but more importantly for me, its 2020 dividend of 50 cents per share was an increase of 14% based on 2019 levels.

Hikma’s primary risk for me is its potential for lawsuits. Its business model relies heavily on manufacturing other firms’ treatments at a fraction of the cost. Unfortunately there are already examples of lawsuits against it. 

Overall I do believe Hikma is well placed to benefit from the demand for affordable healthcare growing across the world. Based on its size and financials, it is in a position to invest heavily into research and development as well as marketing. Despite its challenges, I would buy Hikma shares for my portfolio with some of the £2,000 mentioned.

Best stocks to buy now, pick #2

Diageo (LSE:DGE) is an international spirits maker and brewer. When the market crashed last year, Diageo would have been a great buy as its share price has increased more than 40% since. As I write, Diageo shares are trading for 3,499p compared to March 2020’s market crash bottom of 2,427p.

I would still add Diageo to my portfolio, despite the fact it is expensive, trading at nearly 30 times forward earnings. This is because it is one of the top performing FTSE 100 stocks. Furthermore, pent up demand has seen sales increase throughout the world as people finally return to pubs, bars, and restaurants. I expect this upward trend to continue on all fronts. 

Due to its recovery, Diageo management plans to return over £4.5bn in capital to shareholders. Diageo’s management also improved its profit forecast for 2021, which is a cause for optimism. Organic profit is forecasted to grow by at least 14% in the year ending June 30.

Diageo does have its risks. Firstly, further Covid-19 variants could affect sales. Secondly, it has quite high debt levels. Net debt was equivalent to 3.4 times cash profits at the end of December 2020. If interests rates rise, this could become unsustainable. 

Overall, Diageo remains on my best stocks to buy now list and I would buy shares in this FTSE 100 stalwart with some of that £2,000.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Diageo and Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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