Here’s my prediction for the best FTSE 100 stocks for H2

Jon Smith details keys events that he’s watching out for in the coming six months and explains which FTSE 100 stocks he expects to do well.

| More on:
Businesswoman calculating finances in an office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

We’re in the second half of the year, with plenty on the horizon that could make for volatility in the stock market. It kicks off tomorrow (4 July) with the UK general election. In coming months, we’re due several major central bank meetings, inflation and other data releases that could impact FTSE 100 stocks. With that in mind, here’s how I think things could pan out.

Events ahead

If we start with the general election, I actually don’t think we see a huge market reaction if the Labour party win a majority. This is because this eventuality is widely expected by people. Investors don’t like unpredictability, but if things happen as expected, there’s not too much to be concerned about in the short term.

Looking ahead, I think that the main driver for the FTSE 100 will be inflation and the reaction of interest rates. The latest data showed that inflation is now back at 2%, the target level of the Bank of England. This should likely support several cuts in interest rates between now and the end of the year.

If my prediction is correct, I think that the best Footsie stocks for me to think about buying will be ones that stand to benefit from lower inflation and lower interest rates. At the same time, I could look to add shares that could do well from increased Government spending in key areas such as property and healthcare.

Next up

One example of a stock on my watchlist for H2 is Next (LSE:NXT). The fashion and homeware retailer has been a face on the high street for over four decades. Over the past year, the stock has outperformed, rallying by 32%.

I think the stock could continue to do well as inflation continues to moderate. Consumers should feel more confident with their finances without costs spiralling higher. This could see them spend more on clothing and home furnishings. I think Next is well positioned to benefit from this, in that it isn’t high-end luxury but more middle market.

Further, Next should benefit from lower debt costs. In the annual report, it mentioned how net debt reduced by £97m to £700m for 2023. This is great, but another benefit will be felt through lower financing costs going forward. If interest rates do fall, it’ll make issuing new debt less expensive. This ultimately should help to boost cash flow and profitability.

One risk is the problem that Next has with external factors. For example, in the latest quarterly report, it spoke of how demand might be lower due to wet spring weather. To be at the mercy of the natural elements isn’t something investors will be happy about!

Making a call

Ultimately, my predictions for the coming six months are based on how I see the world right now. People might (and do) disagree with me. Yet that’s the beauty of the stock market. It’s made up of buyers and sellers, with those that make the correct calls rewarded in the long run.

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.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing For Beginners

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I could earn a second income worth £35,000

Millions of us invest for a second income. Our writer explains how he's making it work and shares tips for…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

No savings at 35? I’d use Warren Buffett’s method to try and build massive wealth

Warren Buffett made most of his multi-billion-dollar fortune after turning 50. So what was his trick to building enormous wealth…

Read more »

Investing Articles

My Stocks and Shares ISA is ready for a 2024 stock market correction. Is yours?

A new market correction may be on its way. Zaven Boyrazian explains how he’s preparing his Stocks and Shares ISA…

Read more »

Investing Articles

Surely the Lloyds share price has gone too high?

The Lloyds share price climbed 8.4% in the week of the election. Dr James Fox explores whether the stock has…

Read more »

Investing Articles

A once-in-a-decade chance to buy FTSE shares for passive income!

Even with the market rally, many FTSE shares are trading at dirt cheap valuations, creating a rare opportunity to lock…

Read more »

Investing Articles

The Bank of England predicts another stock market correction! Who cares?

Concerns are on the rise as the UK’s central bank anticipates a sharp correction in asset prices. But can investors…

Read more »