Near 52-week lows, these FTSE 100 shares could be brilliant long-term market-beaters

A sluggish UK market has thrown up many opportunities for long-term investors. Our writer picks out two favourites from the FTSE 100.

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As a complete Fool, I’m only interested in owning stocks that stand a better-than-average chance of outperforming the UK market. Otherwise, I might as well just buy a passive fund that tracks the return of the FTSE 100 and do something more productive with my time.

With this in mind, here are two that I’ve got my eye on currently.

Selling pressure

Shares in premium alcoholic drinks seller Diageo (LSE: DGE) keep falling. At the time of writing, they’re down 15% in the last 12 months as investors remain skittish about higher costs and ongoing geopolitical and macroeconomic uncertainty. The tragic loss of long-standing former CEO Ivan Menezes was a shock too.

These difficulties aside, Diageo’s main appeal for me can be summed up in one word: consistency. This is a company that manages to keep growing revenue and profit in most years. Indeed, the fact that people will continue drinking its brands through good times and bad has allowed the company to build an excellent track record of raising its annual dividends.

All this goes to explain why the shares have and will probably continue to vastly outperform the FTSE 100 over the long term.

Still too expensive?

If there’s one drawback here, it’s probably the valuation.

Despite recently setting a new 52-week low, the shares still change hands for the equivalent of 19 times forecast earnings. That doesn’t exactly scream ‘cheap’. However, it is significantly lower than this company’s five-year average price-to-earnings (P/E) ratio of 24.

Since we’re unlikely to ever see it in the bargain bin, I think now’s as good a time as any for me to begin building a position when cash becomes available.

Out of favour stock

A second top-tier stock hitting 52-week lows is Aviva (LSE: AV). This appears to be largely due to concerns about the state of the UK economy — and the lack of interest in wealth management services during downturns — rather than anything specifically to do with the company. Tellingly, the share prices of sector peers Prudential and Old Mutual are also out of favour.

Like Diageo, I see this as an opportunity. The shares now trade on a P/E ratio of less than nine. That’s low relative to the average P/E of UK stocks in general.

It also looks like a great deal considering that the £10bn cap has recently become a far more efficient business while maintaining a dominant hold on the life insurance market.

Great income

The thing I like most, however, is the income stream. Right now, it yields 8.7%. That outpaces inflation. It’s also far more than I’d get from a cash savings account or, indeed, most stocks in the market.

Importantly, it too has a good history of hiking its payouts. That’s definitely not the case with all FTSE-listed companies.

Ultimately, the best time to buy is usually when no one else will, so long as the company in question isn’t a basket case and the long-term outlook is positive.

I think that’s the case here, especially as an ageing population will push more of us to get our retirement finances in order.

This makes me believe Aviva could outpace the market return over the next decade.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc and Prudential Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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