It’s been a volatile start to 2022 for global stock markets as geopolitical uncertainty and monetary tightening begin to bite. However, I’ve identified two FTSE 100 stocks that have bucked this trend.
With strong fundamentals and solid earnings forecasts, I believe these UK shares have the potential for substantial gains over the next five years and beyond. Here’s why.
FTSE 100 share #1 – Shell
Shell (LSE: SHEL) stock has enjoyed explosive gains of over 26% this year after superb financial results for 2021. Adjusted earnings beat expectations, rocketing to $19.29bn from $4.85bn the previous year.
Buoyed by sky-high oil prices, the FTSE 100 energy giant will undertake an $8.5bn share buyback programme by the end of Q2. Shell also intends to hike its dividend by 4% to $0.25 per share.
Yet despite its strong recent performance, the Shell share price is marginally down over five years. In addition, the plummeting values of its Russian assets have recently cost the company nearly $5bn since it ceased operations in the country.
Nonetheless, I remain bullish. Shell has sufficient geographic diversification to withstand Russian sanctions in my view. For instance, there’s its substantial on-stream oil and gas projects near Nigeria and Mexico.
Shell stock could also benefit from an agreement with Deutsche Telekom to supply renewable energy for 10,000 electric vehicle charging points in Germany. I regard this as a positive development for the fossil fuel business.
While there are signs of a greener future for the company, I still see oil as the real driver of growth for Shell’s share price. During a booming commodities cycle, the next five years should be significantly better for this FTSE 100 stock in my opinion. I’d buy.
FTSE 100 share #2 – London Stock Exchange Group
Financial infrastructure and data analytics form the core of London Stock Exchange Group (LSE: LSEG)’s business. The LSE share price is up 16% over three months and an impressive 73% over three years. This FTSE 100 company generates 44% of its earnings in EMEA, 42% in the Americas and 14% in Asia.
LSE services 40,000 customers in 190 countries. Last year, the company enjoyed revenue growth in all three of its primary divisions — data & analytics, capital markets and post trade. Adjusted earnings per share almost doubled to 287p.
It also delivered statutory total income of £6.4bn for 2021 and a 27% increase in the total dividend per share to 95p. This year, the company has ambitious plans to expand its Workspace technology to foreign exchange users at scale, reinforcing its end-to-end FX offering. Overall, the FTSE 100 stock looks well positioned for long-term growth.
However, cautious investors will note recent news concerning heavy selling of LSE shares. Institutional investors sold a total of £450m last month, according to Bloomberg, suggesting the stock could be overvalued. As Brexit tensions persist, further headwinds are posed by EU plans to move its clearing operations away from the London Stock Exchange to the eurozone by 2024.
Nevertheless, I’m optimistic about this British financial company. While not without risks, it’s a highly cash-generative business with truly global diversification. For me, LSE stock is a good investment to buy and hold for years to come.
