Buying shares within an ISA is an astute investment strategy, in my book. Within this type of account, all gains and income generated are completely tax-free.
Here, I’m going to highlight two high-quality FTSE 100 shares I see as great investments for an ISA in 2023. Both shares have generated impressive gains for investors over the long run and I think they’re priced attractively today.
An exceptional company
First up is Diageo (LSE: DGE). It’s the owner of Johnnie Walker, Tanqueray, Smirnoff, and a whole lot of other well-known alcohol brands.
Diageo is an exceptional company and from a long-term investment perspective, there’s a lot to like about it.
For starters, it has strong competitive advantages, thanks to its brands. These brands lead to repeat purchases from consumers which, in turn, lead to consistent sales. They also give the company pricing power, which is handy in an inflationary environment.
Secondly, it has growth potential. Diageo generates a large chunk of its sales in the world’s emerging markets. As incomes rise in these markets over the years and decades ahead, demand for the types of premium alcoholic beverages Diageo produces should rise.
Third, it generates high returns on capital, which gives it the firepower to reinvest for future growth.
Finally, it has a superb dividend track record, having raised its payout every year for over 20 years. The yield is currently about 2.2%.
On the downside, the company is shortly about to lose CEO Ivan Menezes, who has held the top role for around a decade. Menezes has done an outstanding job as head of the company, so his presence may be missed.
Overall however, I see this stock as a top investment.
The forward-looking price-to-earnings (P/E) ratio here is currently about 20, which I think is very reasonable for a company of Diageo’s quality.
A world-class business
The other FTSE 100 stock I want to highlight as a good investment for an ISA is London Stock Exchange Group (LSE: LSEG). It’s a leading financial markets infrastructure and data business.
This is another company with powerful competitive advantages. Its monopolistic position in terms of the operational side of the UK’s financial markets is one. Its ownership of FTSE Russell (FTSE and Russell indices are some of the most well-known financial market indices in the world) is another. These competitive advantages mean competitors can’t easily steal market share.
It’s also a company with plenty of potential. One source of growth here could be the recently-announced partnership with tech giant Microsoft. Going forward, the two companies will work together to develop next-generation artificial intelligence (AI) and cloud-based data and analytics solutions. London Stock Exchange believes the partnership will increase its revenue growth “meaningfully” over time as new products come on-stream.
A risk to consider here is that an investor consortium including Blackstone and Thomson Reuters (which sold data provider Refinitiv to the group in 2021) is selling London Stock Exchange shares at the moment to reduce the size of its stake in the company. This could keep share price gains muted in the near term.
Once they’re done selling though, I think the share price could take off. The forward-looking P/E ratio is just 23 right now, which is relatively low for a high-quality financial technology company.
