Now could be a brilliant time to start investing in FTSE 100 stocks. This is because the blue-chip index is 25% below its all-time high of two years ago. It’s always recovered from previous setbacks. As such, buying a diverse selection of Footsie stocks today could lead to impressive capital returns in the long run.
Many high-quality businesses are on offer at discount prices. Here are three such blue-chip bargains I’d buy for a starter portfolio in October.
A FTSE 100 starter-stock favourite
Diageo (LSE: DGE) owns Guinness and an array of top-class spirits brands, including Johnnie Walker whisky and Smirnoff vodka. Indeed, it’s the world’s largest producer of spirits.
Covid-19 lockdowns saw a boom in off-trade sales, with more people drinking at home. But on-trade sales were hit by the closure of pubs and other hospitality venues. However, the company released an encouraging trading update today. This came on the back of continued robust off-trade sales and the gradual re-opening of the on-trade channel in most markets.
Nevertheless, Diageo’s shares remain at a discount of over 20% to their all-time high of last year. While earnings are expected to be lower this year, I think we’re looking at a great opportunity to buy shares in this classy FTSE 100 stock for the long term. As well as the potential for impressive capital gains, it comes with an inflation-busting dividend yield running at 2.5%.
This FTSE 100 stock could be another wise buy
Sage (LSE: SGE) is the global market leader for accountancy software and services. It has high-quality recurring revenues (90% of sales) from its diversified customer base of small- and medium-sized businesses.
The group saw a reduction in new customer acquisition and a slight increase in customer churn during the most challenging period of the pandemic. However, it said in July that trading performance gradually improved as the quarter to 30 June progressed.
A dip in earnings is forecast for its current financial year, which ends 30 September. On a longer-term view though, I reckon its market-leading position makes it another FTSE 100 stock with the potential to deliver impressive capital gains. Also similar to Diageo, it carries a dividend yield of 2.4%.
A conglomerate discount and 5.4% yield
GlaxoSmithKline (LSE: GSK) has pharmaceuticals and vaccine divisions. It also has a consumer healthcare business. Preparations for the future separation of the consumer business are progressing well.
I reckon that separation could realise value for buyers of the stock today. This is because markets often apply a ‘conglomerate discount’. That’s to say, a lower valuation for a group of businesses than if they existed as focused separate entities. With general market weakness on top of a possibly sizeable conglomerate discount, I think there’s great value on offer here.
As with my other picks — and indeed most FTSE 100 stocks — GSK is expected to see a dip in earnings this year. However, I see strong potential for impressive capital gains, including as a result of the separation of the consumer healthcare business. In the meantime, there’s a very nice 5.4% running dividend yield for buyers of the stock today.
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, GlaxoSmithKline, and Sage Group. 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.