Have £1k to invest? I’d buy these 2 FTSE 100 stocks in an ISA today

I think these two FTSE 100 (INDEXFTSE:UKX) shares could deliver high returns in the long run.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

Investing in the FTSE 100 today may not seem to be a worthwhile move. After all, the index faces a number of risks that could derail its progress in the short run.

For example, there is an election just around the corner, Brexit looks set to dominate political discussion in 2020 and the threat of a global trade war is very real.

However, these risks could make now a good time to buy shares. Many stocks seem to trade on low valuations that could lead to high returns in the long run.

With that in mind, here are two large-cap shares that could be worth buying in a tax-efficient account such as an ISA.

Whitbread

The recent trading update from Premier Inn owner Whitbread (LSE: WTB) highlighted the progress it is making with its strategy. It is continuing to open new hotel rooms in the UK, where demand has been robust despite an uncertain economic outlook. It is also accelerating its international growth plans, with Germany being a key market for the business in this respect.

Alongside its growth strategy, the company is aiming to reduce costs. It is implementing new technology to become more efficient, which could help to support margins at a time when consumer confidence is weak. A more efficient business model may make the company more competitive versus peers, and could enable it to be more aggressive on price while consumer spending levels are relatively weak.

Looking ahead, Whitbread is forecast to post a rise in its bottom line of 19% in the next financial year. its price-to-earnings growth (PEG) ratio of 1.2 could mean that it offers growth at a reasonable price. As such, now could prove to be the right time to buy a slice of the business and hold it for the long term.

Tesco

Another FTSE 100 company that may deliver surprisingly strong earnings growth is Tesco (LSE: TSCO). It is expected to produce an increase in its bottom line of 10% in the current year. This puts it on a PEG ratio of just 1.6, which could mean that it offers a wide margin of safety.

Certainly, the supermarket sector is a tough place to do business. Competition is high, consumer spending habits are changing in terms of there being a switch towards online grocery ordering, and consumer confidence is weak. These threats look set to remain in place over the medium term, although Tesco’s strategy of improving its product range and cutting costs seems to be improving its customer satisfaction levels.

In addition, the stock is expected to increase its dividend payments so that it yields 3.9% next year from a payout ratio of 50%. This could mean that it becomes an increasingly attractive income share, and offers an improving total return in the coming years.

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.

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

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »