FTSE 100 stocks tend to move ahead of events in the economy along with the rest of the market.
And right now, I think shares may be jostling for position for a new bull phase and looking beyond any recession or further weakness in the economy.
The rate of price inflation is starting to ease around the world including here in the UK. And that could be one of the first green shoots indicating brighter economic times ahead.
So with that in mind and with company valuations depressed in many cases, I think it’s a good time to consider putting £5k to work by owning some select FTSE 100 stocks.
A top retailer
For example, I like the look of clothing, homewares, and beauty products retailer Next (LSE: NXT). As general economic conditions improve, consumers will likely find themselves with more spare cash. And retailers like Next may benefit when they spend it.
On 19 June, the company said recent trading had been better than expected. And the directors upgraded revenue and profit forecasts for the full year to 28 January 2024.
However, City analysts expect earnings to decline this year by around 24% before bouncing back a little in 2024. So ongoing growth remains elusive for the time being. And if general economic conditions deteriorate, there’s a risk that shareholders may see the stock decline.
Nevertheless, the valuation looks undemanding to me and the directors appear to be cautiously optimistic about the outlook.
With the share price near 6,876p, the forward-looking earnings multiple for 2024 is running just above 12. And the anticipated dividend yield is a little over 3%.
Despite the risks, I’d be inclined to tuck away a few Next shares now to hold long term.
One of the word’s best banks
But I’m also keen on banking and financial services company HSBC Holdings (LSE: HSBA).
Bank stocks tend to move to anticipate economic recoveries and slowdowns before they’re apparent in reality. And I’m bullish about the outlook for world economies. So the bank stock appeals to me now.
In May, the directors were optimistic about the outlook for the bank’s operations around the world. And they said the business had been performing well. Meanwhile, City analysts predict modest increases in earnings ahead and robust progress with shareholder dividends.
The biggest risk is that world economies may turn down again. And if that happens, the stock will likely plunge.
However, I’m tempted to embrace the risks and nibble at a few HSBC shares now for my diversified long-term portfolio.
Meanwhile, with the stock around 613p, the forward-looking dividend yield for 2024 is above 8%. And the price-to-book value is around 0.92.
I see those valuation indicators as tempting.
These aren’t the only FTSE 100 stocks I’d consider now but they are near the top of my watchlist. Right now though, all I need is some more spare cash to invest!