Part of my investment strategy is to identify sectors that could benefit from a distinct economic climate. As the UK economy heads towards recovery, these two FTSE 100 shares stand out as potential investments for my portfolio.
FTSE 100 retail share
The return of customers to malls and stores across the world is a promising sign for the retail sector. As a result, I expect companies that rely predominantly on store sales to benefit. This is why luxury fashion brand Burberry (LSE:BRBY) looks like an attractive pick for my portfolio.
I do not see the 8.6% drop in share price over the last month as a concern, but as an excellent buying opportunity. I believe Burberry is set up well for growth based on its robust financial performance.
Store sales have rebounded well in the first quarter of 2021, up 90% from July 2020. Despite a digital presence, the network of over 475 retail stores globally remains the main source of revenue for the company. The company expects the sales figures for 2022 to increase by £114m, which bodes well for my potential investment. Burberry was ranked tenth most valuable luxury brand in the world and is the only British company on the list.
The company has also established successful partnerships with fashion icons like Kendall Jenner. To me, this shows initiative to capitalise on the sector’s growing cultural importance. Despite concerns surrounding this FTSE 100 share, a quick recovery looks likely with prices increasing 5% in the last week. I expect steady returns from an investment in Burberry stock today.
UK defence giant
The recent news surrounding UK defence and aerospace companies subject to increasing bids from US competitors has put a spotlight on the sector. Ultra Electronics and Meggitt both are inching closer to takeovers by foreign-backed firms. This shows me a demand for UK’s impressive R&D in the field and BAE Systems (LSE: BA) is one FTSE 100 share that I’d buy to capitalise on the sector’s boom.
Global defensive spending grew by $1,981bn in 2020 and the Stockholm International Peace Research Institute estimates global spending to be around $2trn. This figure could increase steadily over the next decade which would boost BAE’s sales. The company also has an ongoing £1.3bn Eurofighter contract with Germany and signed a £2.4bn munitions contract with the UK which brings its order book value to £44.6bn. As a result, the first-half 2021 report shows an operating profit increase of 61% to £1.3bn.
When I look at BAE’s current share price of 552p, the stock is trading at a forward price-to-earnings (P/E) ratio of 10 times. This looks like a bargain to me given the market position and revenue figures of the company. The company also offers a dividend yield of 4.3% which is a handsome passive income stream for my portfolio.
My concern with an investment in the defence sector is a potential change in governmental regulations. National security concerns could halt overseas trade and deflect any potential bids. Also, BAE’s current debt of £2.74bn is slightly concerning. But, the large order book and growing importance of the sector lead me to believe that this FTSE 100 share could deliver strong returns over the long term.