Some investors avoid the FTSE 100 index when looking for stocks to buy because of its association with so-called old-world companies. These are oil firms, banks and miners, to name a few.
However, I think this is a mistake. Many blue-chip stocks in the index have no association with these industries.
I would concentrate on these companies when looking for shares to buy in the UK’s leading stock index.
FTSE 100 index leaders
The first company I would buy is one of the UK’s most prominent tech groups, Sage (LSE: SGE). This accounting software provider is in the middle of a transition. A decade ago, clients paid for the firm’s software CDs, which worked well, but revenues were lumpy.
For the past few years, the company has been moving to a subscription-based model. Buyers sign up for a monthly subscription, which provides a steady stream of recurring revenues for Sage, and is more convenient for the end-user.
This transition is now starting to yield results. Group recurring revenues increased 5% overall for the nine months to the end of June.
I think this is one of the best stocks to buy now as its strategy begins to pay off. That is why I would buy the stock for my portfolio.
One risk I will be keeping an eye out for is competition. The accounting software market is highly competitive. If Sage overlooks rival offerings, sales could come under pressure.
Stocks to buy
Another stock I would buy in the FTSE 100 index that is in the middle of a transition is Next (LSE: NXT). Quite a few years ago, this company started investing heavily in its online retail operation and it later added third-party brands to its own-brand offer. In 2019, online sales surpassed 50% of total sales. This ratio increased further last year.
As we advance, I think Next will continue to refine and develop its online offering. It is also investing in a product to help other retailers fulfil their online sales by using its services. This could become a big winner for the retail champion and help cement its position as one of the UK’s best-run companies.
Unfortunately, I do not think it will be plain sailing for the firm from here. Challenges include competition, which is fierce in the e-commerce fashion market, and fashion trends. If Next misinterprets fashion trends, customers might start shopping elsewhere.
Despite these risks, I would buy the stock today.
The final company that features on my list of stocks to buy in the FTSE 100 index is Pearson (LSE: PSON). This is another business that is evolving. The supplier of education textbooks is moving online. This change was already underway before the pandemic, but it has only accelerated during the past 18 months.
Education is a defensive market, there will always be a need for some form of education service, and Pearson has the time and resources to make a success of its changes. That is why I would buy the shares for my portfolio. When the transition is complete, the firm should be more flexible and accessible as it is easy to break down barriers with technology.
Risks the company may face include cuts to education budgets, which could push down demand and competition from lower-cost competitors.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Next. The Motley Fool UK has recommended Pearson and Sage Group. 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.