2 FTSE 100 shares I’d buy for 2021

The outlook for 2021 is uncertain, but these unloved FTSE 100 shares should provide low-risk profits and reliable dividend income, says Roland Head.

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What does 2021 have in store for us? Writing on the first day of the latest lockdown, it’s not yet clear how the year will turn out. But as a buyer of FTSE 100 shares, I think there are some reliable themes I can profit from.

Here, I’m going to look at two stocks I’d buy today for 2021 and beyond.

The big comeback?

The oil market suffered one of the deepest crashes in history last year. It really was the perfect storm. Demand slumped as people stayed at home and stopped driving and flying. Meanwhile, environmental concerns rose up the agenda.

Shares in Royal Dutch Shell (LSE: RDSB) fell to levels not seen for more than 25 years. Shell’s share price collapse wasn’t the only loss suffered by loyal investors either. The company cut its dividend for the first time since the Second World War.

It’s fair to say it was a bad year. But I think that this FTSE 100 share could deliver a strong comeback over the next 12-18 months.

I’ve held onto my Shell stock and added more last year. I’m now sitting tight. Over the coming year, I expect demand for oil and gas to increase as the world starts to return to normal. In particular, I expect a solid performance during the second half of this year as mass vaccinations start to deliver results.

What about the environment?

Of course, burning more oil won’t solve the problem of climate change. However, Shell made new commitments last year to cut emissions relating to its products and increase investment in renewables.

Switching the firm’s focus from fossil fuels to low-carbon energy won’t be easy. But the shift to net zero doesn’t need to happen overnight. Analysts expect the group’s pre-tax profit to rise by 20% in 2021 and by a whopping 60% in 2022, as the impact of the pandemic fades away.

On these forecasts, Shell looks decent value to me. This FTSE 100 share trades on 12 times 2021 forecast earnings, with a dividend yield of 4.2%. I’m happy to hold on at this level, as I believe better times are coming for energy investors.

Essential services from this FTSE 100 share

My second sector pick is food. Last year saw boom times for supermarkets as we were all forced to eat (and drink) at home. This remained true over Christmas. Strong demand for festive treats meant sales at Wm Morrison Supermarkets (LSE: MRW) rose by 9.3% over the holiday period, compared to the same period in 2019.

It’s a solid result but the news for shareholders is a little more mixed. Supermarkets have faced significant extra costs from trading through the pandemic. Competition to offer the lowest prices has remained intense and the company says prices continued to fall during the second half of last year.

Price-cutting puts pressure on profit margins. Another source of pressure may be online orders, which tripled during the final quarter of the year. The company says online “is already profitable”, but admits it’s still learning.

These short-term pressures may limit growth this year, but I’m not worried. Over time, I believe Morrison’s mix of retail and wholesale will lead to higher profits and share price growth. This FTSE 100 share currently trades on 13 times forecast earnings and offers a 5% dividend yield. It’s the supermarket stock I’d buy today.

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.

Roland Head owns shares of Royal Dutch Shell B. The Motley Fool UK has no position in any of the shares mentioned. 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.

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