In these volatile times, I reckon investing within the FTSE 100 index is a good idea.
For example, my low-cost Footsie tracker fund investment has been holding up quite well. And I think that’s because many strong and mature businesses are within the index.
However, I’m not investing only in tracker funds. There are several companies I’d focus on for a potential investment on their own for the next bull market. And one example is the energy business Centrica (LSE: CNA).
Turning around
With the share price near 82p, the forward-looking dividend yield for 2023 is around 4.7%. And City analysts expect a recovery in earnings of around 25% that year. Of course, it’s always possible for analysts to be wrong and any company can miss its estimates.
However, Centrica operates in a buoyant sector. In 2021, around 32% of its gross profit came from upstream activities. And that involved producing and processing gas and oil as well as selling power generated from nuclear assets.
Some 30% of the firm’s gross profit came from supplying gas and electricity to residential and small business customers in the UK. And about 20% came from the installation, repair and maintenance of domestic central heating and gas appliances. Many of the firm’s customers purchased maintenance and breakdown insurance contracts.
In May, Centrica said it had experienced “strong” operational performance in the first four months of 2022. There are no guarantees of a favourable investment outcome for me. But Centrica looks like it may be turning its business around. And that’s after a period of poor performance characterised by several years featuring declining earnings.
Rising earnings
Meanwhile, I can’t ignore the positive numbers coming from smoking products maker British American Tobacco (LSE: BATS). With the share price near 3,568p, the forward-looking dividend yield for 2023 is around 6.8%. And City analysts expect steady increases in earnings of about 8% to 10% each year.
Rising profits look set to drive those increases in earnings per share along with the company’s share buyback programme. But as with any company, estimates are not set in stone. And operational or regulatory challenges could arise to derail expectations.
The valuation numbers look tempting to me. However, the industry faces keen regulatory scrutiny. And that situation adds an extra layer of risk to any investment in the company’s shares.
Nevertheless, on 9 June, it released an upbeat trading update. It’s making progress in winning market share for its new products. They’re aimed at reducing some of the harmful effects of smoking. However, the category is loss-making. Although it’s edging closer to being profitable.
Meanwhile, traditional smoking products continue to operate as a cash cow for the business. But that’s against a trend of declining global tobacco industry volumes.
There are some clear risks with British American Tobacco. But, on balance, I’m happy to hold some of the company’s shares in my diversified portfolio for the next bull market.
