Investors just getting started shouldn’t look any further than the FTSE 100, I feel. It offers the highest-quality stocks to consider buying.
Of its 100 constituents, many are household names. They sell products that people use and consume every day.
For investors starting out, here are two I reckon they should consider buying today.
British American Tobacco
First in line is British American Tobacco (LSE: BATS). Now, I know what people may think. Why buy shares in this company? It operates in a dying industry, right?
Well, maybe. And I’m not disregarding the challenges it may face in the years ahead. However, I feel British American Tobacco is a strong enough business to overcome them.
Firstly, it’s aware of this trend, so it’s diversifying. Its New Categories division sells non-combustible goods such as tobacco-free nicotine pouches and vapour products. It’s home to many brands quickly growing in popularity, such as Velo. Last year, organic revenue for the division grew an impressive 21%.
To go alongside its growth in new areas, I also like the fact that the stock has a high dividend yield. It currently sits at 10.2%, the third-highest on the Footsie.
Dividend payments are never guaranteed. Events, such as the pandemic, which seriously hurt a company’s profits, can see them reduce or cut dividends in an attempt to save money.
However, with British American Tobacco, I’m confident that it will keep paying its shareholders. That’s because it has done so for the last 24 years, meaning it has earned its label as a Dividend Aristocrat.
Its share price has suffered in the last 12 months. During that time, it has fallen 18.2%. However, that means that its shares now look ridiculously cheap. As I write, they trade on a price-to-earnings (P/E) ratio of just 6.5. I think that’s too good to pass on.
GSK
For my second pick, let’s turn the attention to pharmaceutical giant GSK (LSE: GSK).
There are many reasons why I like the look of GSK stock today. Firstly, it has strong brand recognition and a dominant market position.
On top of that, it’s also a defensive stock. By this, I mean it will have demand for its products regardless of the macroeconomic environment. With the UK in a ‘technical recession’, owning stocks of this nature seems like a smart idea.
GSK yields 3.5%. Going forward, that’s predicted to rise to over 4%, which is above the 3.9% FTSE 100 average.
Of course, there are potential risks to consider. Pharma companies are always prone to R&D complications. Researching and creating drugs or treatments can cost millions to bring to market, so there’s that to consider.
Nevertheless, as management’s heavy investment in improving its future pipeline seems to be working, I’m bullish on GSK’s future prospects.
It isn’t just me who has this view though. Citigroup recently raised GSK stock to a ‘buy’ recommendation. That’s the first time in seven years. It’s also predicted that the business will grow earnings at 9.4% a year to the end of 2026.
Like British American Tobacco, I believe its shares look cheap. Their P/E ratio of 10.5 is slightly lower than the Footsie average of 11. On top of that, the stock is considerably cheaper than many of its competitors.
