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Lockdown vs recovery: 2 FTSE 100 shares I’d buy for each scenario

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Screen of price moves in the FTSE 100
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The FTSE 100 index has recovered well and, despite fears of a market crash, is showing strong resilience. But I do have some lingering concerns for the UK market after news of another lockdown in China as a result of a new Covid variant breakout. The NHS has called for another lockdown and the UK government might yield given the spike in cases.

I am preparing my portfolio for two scenarios right now. I am picking two stocks to invest in for a potential lockdown and stocks that could perform well if the market and economic recovery continue in the UK. 

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Picks for the recovery

I think Rolls-Royce (LSE:RR) and Burberry (LSE:BRBY) look like good picks for my recovery portfolio. With physical stores back in action and a new CEO Jonathan Akeroyd (starting April 2022), I think Burberry shows a lot of promise. Its share price has risen 3.1% in the last month and retail stocks generally are on a good run.

Analyst predict a huge growth in luxury fashion over the next decade. The growing spending power in Burberry’s key Asian markets is also a big bonus. But China’s new wealth-distribution law could dampen sales, which is a concern. However, I do not expect this to leave a lasting impact, which is why I’m adding Burberry shares to my watchlist.

Similarly, Rolls-Royce could see sustained growth as travel makes a comeback. Its stock has risen 55% in three months, which could continue as more people travel overseas. The engineering company also completed the sale of ITP Aero for £1.5bn and signed a £2bn, 30-year contract with the US for F130 engines. These are signs to me of a company looking to rebound. And RR’s R&D in nuclear reactors shows strong visions for the future.

The company missed its 2022 financial targets, and recovery to 2013 highs could be sluggish. Also, the lockdown scare looms large over the sector. But, if pandemic concerns subside, I would definitely consider buying RR shares for my portfolio.

Picks for a lockdown

If the last lockdown taught me anything, it is to always be ready for the worst. And these are the two stocks I am looking at to prepare. 

Tesco has the largest market share among UK supermarkets, which is why it benefitted during the last lockdown. I expect these factors to play a role if we are forced indoors again. Essentials will become crucial and I expect a grocer boom like last year. The company also announced a £500m share buyback, which is a positive sign for its 3.3% dividend yield. If sales rise in the event of a lockdown, future dividends could grow further. 

Concerns are the razor-thin margins in the sector, which could drop further with export restrictions. But Tesco remains a strong lockdown pick for my portfolio given its importance.

Passive income is a great strategy to raise earnings during the pandemic and Legal & General offers a generous 6.4% dividend yield. This figure could rise if share prices fall as a result of a lockdown situation. It is a tested finance stock with a large market share.

Although I expect the finance sector to take a hit during and after a lockdown, Legal & General’s dividend yield and financial history, which I highlighted in my article last week, makes it a stable buy for my portfolio.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry and Tesco. 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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