Since the State Pension currently amounts to just £730 per month, and the age at which it starts being paid is set to rise to 68 over the next two decades, building a retirement nest egg is becoming increasingly important for many people.
Although there are risks facing the FTSE 100, such as Brexit and a global trade war, the long-term growth potential of many of its members could mean that they offer investment appeal.
With that in mind, here are two FTSE 100 stocks that appear to offer growth potential at a reasonable price. Buying them now could produce capital growth that leads to less reliance on the State Pension in older age.
The most recent update from Tesco (LSE: TSCO) contained the surprise news that its CEO Dave Lewis will stand down in 2020. This could cause some uncertainty for the business in the near term, as he has been the major architect of its revival over recent years.
However, the company appears to be in a strong position to push ahead with further earnings growth over the medium term. Its increasing customer satisfaction scores, adoption of new technology and improving efficiency could act as catalysts on its financial performance and share price.
Certainly, there are risks facing the supermarket segment. They include negative consumer sentiment and a push among consumers towards budget and luxury retailers that could squeeze mid-tier operators such as Tesco.
But as the stock is forecast to post a rise in its bottom line of 10% in the current year and next year, it seems to offer good value for money while it trades on a price-to-earnings growth (PEG) ratio of 1.6. As such, now could be the right time to buy a slice of the business for the long term.
Digital automotive marketplace Auto Trader (LSE: AUTO) is another FTSE 100 stock that could offer long-term growth potential. The company’s recent results showed that it is making progress in implementing a variety of initiatives that are designed to increase the profitability of manufacturers and retailers that use its service.
Increasing innovation could lead to Auto Trader maintaining its dominant position in the wider online vehicle marketplace. Although it faces a period of uncertainty due to weak consumer confidence potentially denting vehicle sales, it is expected to report a rise in net profit of 12% in the next financial year.
The stock’s price-to-earnings (P/E) ratio of 24 suggests that it may not be cheap at the present time – especially compared to some of its index peers. However, with a wide economic moat and an innovative growth strategy, the business could deliver a high rate of earnings growth that is sustainable over the long run. As such, it could outperform the FTSE 100 and help you to generate a retirement portfolio that produces a passive income in older age.
Peter Stephens owns shares of Tesco. The Motley Fool UK has recommended Auto Trader and Tesco. 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.