Should you be buying shares when the economic outlook is so uncertain? Absolutely! I’ve found a number of FTSE 100 shares that I think will deliver strong returns to long-term investors from current levels.
If you’re building a diversified, long-term portfolio, I think you need to have some exposure to the healthcare sector. It’s an essential global business for which I believe demand will only grow.
My top FTSE 100 pick in this sector is pharmaceutical giant GlaxoSmithKline (LSE: GSK). Alongside its prescription medicine and vaccine businesses, the group also has a large consumer healthcare business — home to brands such as Sensodyne and Nicorette.
Glaxo plans to seperate its consumer business into a new company over the next couple of years. This will dividen the group into two smaller and more focused businesses. I think this will improve their growth potential — good news for shareholders.
The GSK share price has now fallen by nearly 15% from the highs seen earlier this year. The shares now trade on about 13.5 times forecast earnings, with a 5% dividend yield. I think this FTSE 100 share is priced to buy.
A FTSE 100 share for tech investors
Big tech stocks are rare in the UK. One exception is cyber security software group Avast (LSE: AVST). This Prague-based firm only floated on the London market in 2018, but its continued growth has already lifted it into the FTSE 100. I think there could be more to come.
Avast’s core anti-virus product has a free version, which the firm uses to recruit users to whom it can sell additional services. The group also has a corporate business. This might sound like a small operation but it’s not — Avast has over 435m active users and generated revenue of $873m in 2019.
Operating profit margins are high, at around 40%. Cash generation is good too, which means the group’s after-tax profits are reliably converted into spare cash. The only criticism I’d make is that the firm’s growth rate is relatively low — adjusted profits rose by just 8% last year.
Despite this, I think Avast’s strong financial performance and large customer base should support continued growth. The shares currently trade on about 20 times forecast earnings, with a dividend yield of around 2.1%. I think that’s a fair price to pay for this high quality FTSE 100 share.
A fashion stock you can trust
When you invest in a company there’s always an element of risk. As outsiders we never know everything about a business. One company that tries hard to provide a level playing field is retailer Next (LSE: NXT), which is known for the quality of its financial reporting.
The bad news is that Next’s management expect sales to fall by between 30% and 40% this year. As a result, pre-tax profits are expected to fall from £728m last year to a maximum of £150m.
However, there’s good news too. Careful management means that the group’s financial position remains very strong. Net debt is actually expected to fall this year.
Another attraction is that broker forecasts suggest profits will bounce back quickly next year. If they’re correct, then this FTSE 100 share now trades on just 13 times forecast earnings.
Next is a highly profitable business with an excellent track record of shareholder returns. I’d rate the shares as a buy at this level.
Roland Head owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK owns shares of Next. 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.