When I am looking for FTSE 100 shares to buy, I try to focus on companies benefiting from significant global trends.
Right now, one of the most extensive global economic themes is rebuilding. Governments around the world are unleashing massive fiscal stimulus plans to rebuild after the pandemic. This could lead to a surge in demand for critical commodities.
Most of the focus is on green energy and technologies, which may increase the demand for copper and rare earth metals. Massive infrastructure projects are also on the cards. These will require more steel and one of its core ingredients, iron ore.
With that in mind, two of my favourite FTSE 100 shares are the mining giants BHP (LSE: BHP) and Rio Tinto (LSE: RIO). The former is one of the world’s largest copper producers, while the latter is one of the largest iron ore producers.
Shares to buy
Five-to-six years ago, the mining sector was in turmoil. Overzealous expansion policies stretched balance sheets to the limit as companies chased output growth. Then commodity prices collapsed, leaving organisations like BHP and Rio with massive capital spending obligations they could not afford.
Since then, the state of the industry has changed dramatically. These companies have cut their growth plans to the bone while focusing on operational efficiency. They have strengthened their balance sheets and reduced costs.
As a result, BHP and Rio are now some of the most fiscally responsible businesses in the FTSE 100. They are also currently benefiting from high commodity prices. These have resulted in surging profitability, and management is returning vast amounts of cash to investors.
City analysts believe Rio’s dividend yield will exceed 15% this year. While BHP’s payout also sits in double-digits.
FTSE 100 growth stocks
Of course, past performance should never be used as a guide to future potential. Just because Rio and BHP have been profitable investments over the past couple of years does not mean they will continue to be so.
Still, as I explained above, I think the current global infrastructure boom will act as a tailwind for these firms. Even if commodity prices slump, elevated demand should ensure they remain above the cost of production for Rio and BHP. With their strong balance sheets and lean operations, these businesses should be able to navigate any turbulence in the sector.
That said, they could face challenges from an environmental perspective. The mining industry is one of the most polluting sectors in the world. Therefore, BHP and Rio may have to spend significant sums improving the environmental credentials of their operations. They could also be exposed to lawsuits, similar to those facing some oil producers.
This is probably the biggest challenge facing Rio and BHP as we advance. Nevertheless, despite these concerns, I would buy both of these stocks for my portfolio today. I think the FTSE 100 companies are one of the best ways to invest in the post-pandemic global economic recovery.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.