The clock is ticking. You only have 13 more days to shelter up to £20,000 from the taxman. It’s a simple equation: use it or lose it!
I may not have a large amount squirelled away but I want my money to work as hard as possible for me. Therefore, for now, I am forgetting the cash ISA for one simple reason. As inflation rips through the economy, the pittance of an interest rate that type of account offers makes it a sure-fire way that, over time, the value of my nest egg will get eroded away.
As the ISA deadline fast approaches, these are my top stock picks; the ones that I have the greatest conviction in to outperform the market in the years ahead. I would not hesitate to buy either of these FTSE 100 blue chip companies today.
Top pick 1: BP
It doesn’t take a genius to tell you that soaring oil and gas prices have turned BP (LSE: BP) in to a cash-generating machine. In its full-year results, it reported revenues of $164bn which translated into a staggering $12.8bn profit.
Although its dividend yield of 4.3% is nothing to shout home about, the company has set aside over 60% of free cash flow to buy back shares. It estimates that buybacks will be in the region of $4bn a year, with oil at $60. Today, it is trading at nearly double that.
Warren Buffett is a great fan of share buybacks. It has helped turbocharge his returns in Apple, Berkshire Hathway’s top holding. I believe it can do the same thing for BP.
Of course, BP is a stock unloved by the market. Its share price is weighed down by two factors. Firstly, the long-term decline in hydrocarbon usage. Secondly, its future cash flows are highly uncertain as it transitions into an ‘integrated energy company’.
However, I believe that the macroenvironment remains highly favourable for BP. The idea that inflation is transitory is well and truly dead. The striking parallels between today and the oil crisis of the early 1970s is unnerving. Consequently, I expect its share price to perform well for years to come.
Top pick 2: Glencore
Glencore (LSE: GLEN) has been one of the stand-out performers in the FTSE 100, with its share price up nearly 400% since the pandemic lows.
On the back of multi-year or record highs in the likes of copper, cobalt, zinc, nickel and aluminium, Glencore’s share price now trades at levels last seen over a decade ago. It’s little wonder that analysts have been rushing to upgrade their target price for this leading commodities producer and trader.
For the income chasers among you, its combined dividend and share buyback policy means its present yield stands at a very healthy 4.7%.
Of course, with such a staggering share price appreciation, then might we be at or near the top? With a long-term investing mindset, I don’t believe so.
As with BP, the investment thesis for Glencore remains intact. On top of rising inflation, population growth, rising living standards in developing economies, and the push to transition to a green economy are all tailwinds for the company. Couple that with a chronic underinvestment in exploration across huge swathes of the natural resources sector, and one has all the ingredients to see its share price remain elevated throughout this decade.