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Forget buy-to-let: I’d buy these 2 FTSE 100 shares in an ISA today

The challenges facing the buy-to-let sector continue to mount. Not only do landlords now have to pay a greater amount of tax than in the past in many cases, house price growth has stalled in many parts of the UK. This could mean that, after a period of strong growth, the prospects for the industry are relatively downbeat.

By contrast, a wide range of FTSE 100 shares appear to offer long-term growth potential. Here are two prime examples, with their international growth prospects and strategies suggesting that they may offer significantly higher returns than buy-to-let investments over the long run.

Diageo

FTSE 100 alcoholic beverages company Diageo (LSE: DGE) seems to be well-placed to deliver improving financial performance over the coming years. It has invested heavily in emerging markets, with it building brand loyalty for its wide range of products over previous years. This could mean that it enjoys a tailwind over the long run, with rising wages in countries such as India and China potentially contributing to sales growth for the business.

One potential risk with Diageo is its valuation. The stock currently trades on a price-to-earnings (P/E) ratio of 23 after a period of strong growth during the course of 2019. However, with it forecast to post a rise in net profit of 8% this year, and its outlook being positive and relatively robust, it may deserve a premium rating compared to the rest of the FTSE 100.

The company’s plans to improve efficiency and focus on its core operations may yield a higher rate of return. With a varied range of products, it appears to offer a favourable risk/reward ratio at the present time.

Whitbread

The growth prospects for Premier Inn owner Whitbread (LSE: WTB) remain strong – even after its sale of Costa. For example, in the current year the company is forecast to post a rise in net profit of 28%, followed by further growth of 18% next year. This suggests that its growth plans for Premier Inn are working well, with its international expansion of the brand providing scope for it to deliver impressive returns over a long time period.

Despite its bright financial future, Whitbread trades on a low valuation. It currently has a price-to-earnings growth (PEG) ratio of just 0.8, which suggests that it offers a wide margin of safety.

Certainly, there is a risk that consumer spending comes under pressure as weak sentiment remains in place. However, Whitbread’s focus on offering budget accommodation may mean that consumers and business travellers trade down to its rooms in order to save money. This could mean that the business offers defensive attributes that lead to it being able to deliver impressive financial performance during a period of uncertainty for the UK economy. As such, now could be the right time to buy a slice of the business.

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Peter Stephens owns shares of Diageo and Whitbread. The Motley Fool UK has recommended Diageo. 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.