Gold is often the first place new investors look when they are uncertain about the future of FTSE 100 shares.
The precious metal is a classic ‘hedge’ against falling share prices and rising inflation. The price of gold usually moves in the opposite direction to stock markets like the America’s S&P 500 or the FTSE 100.
And physical gold prices are now at all time highs at £1,400 per ounce.
But the numbers justifying holding gold long term don’t stack up. If you had bought gold in the 1970s, taking inflation into account, you would have actually made a loss on your investment for the past 40 years!
There are two elite FTSE 100 shares I believe will bring you much more long-term value.
GlaxoSmithKline (LSE:GSK) is not just leading the charge for a Covid-19 vaccine. It also has an unimpeachable economic moat, or competitive advantage.
GSK is so appealing to long-term investors because it can produce incredible repeat profits from its brands. And its intellectual property in the form of branded drug treatments makes it hard for other pharmaceutical companies to swoop in and steal market share.
Companies like GSK are rare favourites among FTSE 100 shares, firstly because they pay better-than-average dividends — a 4.8% yield at last count. And secondly, because they have strong earnings visibility, even in uncertain markets.
GSK’s share price has rebounded so quickly from the stock market crash of March, precisely because of its ability here. Its profits are rising even faster than revenue. 2018 was another bumper year, with £4.8bn profit, but 2019 was even better with £6.2bn.
One recent win demonstrates how it makes these long-term earnings. On 18 May, it hailed a breakthrough HIV treatment by one of its partner companies. Research bosses said they were “thrilled” with the results that the long-acting injectable treatment called cabotegravir can produce.
This is just one of GSK’s stable of healthcare treatments. It also has medications for common respiratory diseases like asthma. And not only are these helping to allieviate patient symptoms. They are also highly profitable for shareholders.
When I think about the next 20 years I also believe that renewable energy will be a major driver for economies.
And in FTSE 100 shares, I’m looking at those profiting from the electric revolution in everything from cars to power plants.
My top choice here is SSE (LSE:SSE). The former Big Six energy supplier has seen which way the wind is blowing. Last year it offloaded its consumer division to Ovo Energy to focus solely on building renewable infrastructure.
This move is already having a major impact. Company profits leapt from £864m on revenue of £26bn in 2018, to £1.7bn on revenue of £7bn in 2019.
SSE says its investment case “rests on its clear dividend commitment” and I am minded to agree. At a time when 45% of FTSE companies have stopped or reduced dividends, it pays an 8.2% yield. Today’s share price is around the average of FTSE 100 shares at 17 times earnings.
The UK is already the world’s largest market for offshore wind. And SSE’s investment in core infrastructure is key for the UK government to meet its legally-binding target to produce net zero carbon by 2050.
Zoom out from the day-to-day to consider the future. I think these FTSE 100 shares will make a much better long-term investment than gold.
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Tom Rodgers has no position in the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.