With the best interest rates on a Cash ISA being little more than 1.5% at the present time, savers are failing to obtain an inflation-beating return. This could reduce their chances of retiring early, since even significant savings would currently lose their spending power over the long run.
By contrast, a number of FTSE 100 stocks appear to offer high return prospects. The index still seems to be undervalued despite doubling in just over a decade.
As such, now could be the right time to buy these two large-cap stocks. They appear to offer wide margins of safety, as well as sound growth strategies, that could help to improve your retirement prospects.
FTSE 100 retailer Next (LSE: NXT) may be experiencing a period of uncertainty due to weak consumer sentiment. Since the Brexit process is highly uncertain, consumers may remain downbeat about the outlook for the UK economy. This may mean that despite positive wage growth, their spending habits remain somewhat subdued.
However, Next has been able to outperform many of its industry peers in recent quarters. The company’s ability to adapt to changing consumer tastes, in terms of investing in its omnichannel offering, could allow it to remain highly relevant over the long run. Further investment in this area could allow the business to successfully cater to continued changes in consumer sentiment over the coming years.
Although Next’s share price has gained momentum in 2019, with it rising by 38% year-to-date, it trades on a modest price-to-earnings (P/E) ratio of 13.5. This could mean that it offers a margin of safety, as well as providing long-term investors with an opportunity to buy the stock while it is undervalued. As such, now could prove to be the right time to buy a slice of the retailer.
Another FTSE 100 stock that could provide long-term growth potential is education provider Pearson (LSE: PSON). It has experienced a challenging number of years, but its recent updates have shown that a refreshed strategy which focuses on investment in a digital offering is gaining traction across its customer base. Alongside continued cost savings, this is expected to improve the company’s financial performance over the long term.
In fact, in the current year, Pearson is forecast to post a rise in net profit of over 12%. Since the stock trades on a price-to-earnings growth (PEG) ratio of just 1.3, it seems to offer good value for money relative to the wider FTSE 100.
With Pearson having access to a large potential market through its digital products, and the company focused on investing in this area, it could deliver further improving financial performance. The continued rationalisation of its asset base may allow it to focus on areas that offer the most appealing risk/reward ratios, which may increase its investment appeal and lead to a higher share price over the coming years.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. 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.