The FTSE 100 comprises the hundred biggest companies in terms of market cap on the London Stock Exchange.
These tend to be amongst the most stable shares listed in the UK, and so it’s natural that we Fools are drawn to many of its constituents as long-term buy-and-hold investments!
British American Tobacco
What it does: British American Tobacco manufactures and distributes tobacco products worldwide under brands including Lucky Strike.
By Christopher Ruane. Smoking kills millions of people annually, which is why many investors will not invest in the industry. My own approach is that the industry is legal and individuals choose to smoke. Some businesses benefit from that. By investing in them, I can reap a strong income stream.
British American Tobacco (LSE: BATS) seems out of fashion, based on its low price-to-earnings ratio. Another explanation for that apparently cheap valuation is its high debt load. I see repaying that as a long-term risk to profitability, alongside declining cigarette usage.
Meanwhile, though, the FTSE 100 firm (which has raised its dividend annually for decades) yields over 8%.
It owns premium brands that give it pricing power, helping to offset declining cigarette volumes. The non-cigarette business is growing quickly.
Tobacco shares are not for everyone. But British American is my biggest FTSE 100 holding thanks to its large dividend, global reach and large free cash flows.
Christopher Ruane owns shares in British American Tobacco.
Burberry
What it does: Burberry is a global luxury goods manufacturer, retailer, and wholesaler well-known for its distinctive check design.
By Kevin Godbold. My largest FTSE 100 holding is Burberry (LSE: BRBY) because of its international growth potential.
In May, the company posted decent full-year figures demonstrating steady progress for the trading year to 1 April 2023.
And the chief executive said revenue accelerated in the fourth quarter “as growth rebounded in Mainland China”.
Affluence looks set to grow in Asia over the coming years. And I’m hopeful that Burberry can capture plenty of business as it exports the sentimental notion of Englishness.
As part of that drive, the company recently appointed a new chief creative officer.
With the shares near 2,260p, the forward-looking earnings multiple is around 18. And that’s quite a full valuation given modest expectations for earnings this year.
If new designs fail to appeal to potential customers, earnings may disappoint. And that could lead to shareholders losing money. But I’m optimistic and in this stock for the long haul.
Kevin Godbold owns shares in Burberry.
Diageo
What it does: Diageo is an alcoholic beverages company that owns many brands including Johnnie Walker, Tanqueray, and Smirnoff.
By Edward Sheldon, CFA. I’ve made Diageo (LSE: DGE) my largest FTSE 100 holding because I think it has a very attractive risk/reward profile. This is a company with plenty of growth potential. At the same time, it has ‘defensive’ attributes.
On the growth side, the company is well positioned to benefit from rising incomes in developing countries in the years ahead. Today, the group generates over 40% of its revenues in the world’s emerging markets.
It’s also well placed to benefit from the global ‘premiumisation’ trend – where people are spending more on premium products.
Meanwhile, on the defensive side, it’s a relatively recession-proof company. It’s also a very reliable dividend payer (20+ years of consecutive dividend increases).
Now, Diageo does have an above-average valuation, which adds risk. However, this is a high-quality company with a great track record when it comes to generating shareholder wealth. So, I think it’s worth a premium to the market.
Edward Sheldon owns shares in Diageo
