Today I’m examining three FSTE 100 shares that I would feel confident buying if putting together a beginner portfolio.
With the seemingly endless maze of jargon and charts, investing in shares can be overwhelming. That’s why it’s best to start with well-known and established companies less prone to volatile price movements.
Diageo
Known for brands like Johnnie Walker, Guinness and Smirnoff, Diageo (LSE:DGE) is one of the largest alcohol companies in the world. With a £63.7bn market cap, it operates in 132 countries worldwide employing over 30,000 staff.
Diageo’s 2023 full-year (FY) earnings report revealed increases in cash flow and dividends but with lower operating profit and earnings per share (EPS). These are key metrics that indicate how well a company is performing.
The share price has also fallen by 19% over the past year. Much of this is due to a post-Covid economic squeeze that saw Latin American consumers shy away from luxury-priced products. Industry-specific macroeconomic factors such as this are always important when evaluating a company’s profitability.
However, in the long-term, Diageo promises stable growth. I’m glad I bought some of the shares when I was starting out and would do so again in the same position.
Rightmove
Over the past two decades, Rightmove (LSE:RMV) grew to become the leading platform connecting house-hunters with estate agents. It doesn’t process transactions but facilitates the rent or sale of a million+ property listings a month.
A company’s balance sheet details its assets and liabilities, revealing how efficiently it’s operating and using debt. Ideally, equity (assets minus liabilities) should outweigh debt. With a debt-to-equity (D/E) ratio of 0.11, Rightmove has good debt coverage.
Return on equity (ROE) is another good metric, dividing net income by shareholder equity. At 289%, Rightmove’s ROE is high, suggesting it’s very efficient at generating profits.
Since property is prone to volatility in times of uncertainty, Rightmove’s profits could suffer in economic downturns. Furthermore, with software being a competitive and fickle industry, it could easily lose its market dominance if consumer tastes change.
But with a solid balance sheet and strong financials, I’d feel confident to buy it as a beginner.
Tesco
Tesco (LSE:TSCO) commands a market share roughly equivalent to Sainsbury’s and Asda combined. Furthermore, it’s the go-to store for 51% of online grocery orders in the UK. I think an industry leader like Tesco is an excellent starter stock to consider, as it exhibits stability and resilience during economic uncertainty.
It does face competition from low-cost chains like Aldi and Lidl, which have captured more of the UK market. Rising interest rates have driven consumers to seek cheaper alternatives, threatening Tesco’s profits. Although this is a risk, I feel confident holding my shares for now.
In its 2023 FY results released last month, Tesco revealed an increase of 7.2% in revenue and 5.3% in sales. However, cash flow and operating profit fell 6.3% and 6.9% respectively. The share price struggled early in the year but has since risen 6.7% after hitting a low of 273p in mid-February.
While these aren’t the most exciting shares on the FTSE 100, they’re well-establishing brand names that people use often in their day-to-day lives. For beginners, I think such stocks make good initial investments to research due to their low volatility and reliable performance.
