I think some of the best shares to buy on the London market are located in the FTSE 100. This blue-chip index has its share of duds, but most of its members aren’t and a handful of the firms are true global champions.
With that in mind, here are my five favourite FTSE 100 stocks, four of which I currently own in my portfolio but would buy more of today.
FTSE 100 beverage giant
The first organisation on my list is the drinks giant Diageo (LSE: DGE). I like this company because it has a portfolio of internationally recognised alcohol brands, many of which fall into the premium segment. The premium nature of these products means the group can charge customers more, and we see this in its profit margins and return on invested capital.
The group is also using its cash resources to buy up smaller brands and expand its footprint around the world. I think this combination of existing flagship brands and acquisitions can help support the company’s earnings and sales growth for years to come.
Some challenges the group might have to overcome going forward include alcohol bans, regulations, and higher costs, although it should pass these on to consumers through higher prices.
Quality shares to buy
Another company in the FTSE 100 consumer goods sector that I own is the bleach-to-Durex producer Reckitt (LSE: RKT). This organisation experienced windfall growth last year thanks to the pandemic. Rising demand for cleaning products helped the firm’s Dettol brand clean up, although some other parts of the business suffered.
As the pandemic has receded this year, demand for these products has declined, and Reckitt growth has slowed. Investors have been quick to turn their backs on the business as a result.
However, I have been buying the shares because I am encouraged by management’s plans to invest more in growth. The new CEO has hiked the firm’s research and development budget and committed to reducing costs, which should help improve profit margins, giving the firm even more cash to spend on growth.
This additional spending is one of the main reasons I believe Reckitt is one of the best shares to buy now. But like Diageo, the organisation is not immune to challenges. Rising commodity prices are pushing costs higher. This may offset some of the group’s cost savings and weigh on growth.
FTSE 100 property champion
Moving away from consumer goods, I think British Land (LSE: BLND) is one of the best shares to buy now. I own this real estate investment trust (REIT) because it provides some diversification for my portfolio.
The company is one of the largest landlords in the country, owning a portfolio of commercial, industrial and office assets around the UK. Over the past few years, as the retail industry has struggled to fight off the e-commerce threat, British Land has been selling off some of its retail assets and reinvesting the proceeds in areas of the market where it believes there are more opportunities.
One of its most extensive development opportunities currently is Canada Water. The east London development is said to be one of the largest redevelopment schemes in the country, with thousands of homes and three million square feet of retail and office space.
This development is set to be a huge growth opportunity for British Land and its investors. It is not the only reason I own the company (I am also attracted to the stock’s 3% dividend yield), but it is a major one.
One challenge the group will likely face in the next year or so is higher interest rates. This headwind will increase the cost of the REIT’s debt and could impact property values.
One of my favourite stocks in the blue-chip index is insurance giant Admiral (LSE: ADM). Insurance can be a risky business. But Admiral really does know what it is doing. Over the past few decades, the company has grown from a start-up into one of the UK’s largest financial services groups. It is laser-focused on high-quality customer service and offering value for customers through deals such as multi-buy insurance policies.
Further, its decision to give customers refunds as there were fewer vehicles on the at the height of the pandemic last year has paid off. Customer numbers jumped in the first half of 2021.
Going forward, the company will focus on its international divisions. That will help diversify the enterprise away from its home market. This growth potential is the main reason why I own the stock in my portfolio and think it is one of the best shares to buy in the FTSE 100.
Of course, expanding overseas is not without risks. The company could end up going into a market it does not understand, which could lead to significant losses.
The final FTSE 100 company I want to highlight in this article is the catering organisation Compass (LSE: CPG). As the largest catering group globally, the business has a substantial competitive advantage over its peers.
Catering is a low-margin, high-cost business, and economies of scale can help keep costs low. That is why Compass has been so successful in taking over the market. Economies of scale have helped the firm take over smaller peers, which boost the group’s bottom line, freeing up more capital for profit and so on.
Unfortunately, despite the company’s advantages, it could not escape the pain the rest of the catering industry felt last year. It is now in recovery mode, and that is why I would buy the stock for my portfolio as a FTSE 100 recovery play.
Some challenges it may have to overcome in the next few weeks and months include further coronavirus restrictions, rising costs and weak demand.
Rupert Hargreaves owns shares of Admiral Group, British Land Co, Diageo, and Reckitt plc. The Motley Fool UK has recommended Admiral Group, British Land Co, Compass Group, Diageo, and Reckitt plc. 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.