A common investing mistake is holding too few shares. In the investing world, there’s no limit to how many stocks I can buy. In fact, when researching different FTSE 100 stocks for 2021, it’s actually better to look for a variety of shares. This helps to diversify my risk in case something unexpected happens to one company that I’ve invested money in. But for argument’s sake, let’s say I could only buy one stock this year. In essence, I’m deciding which stock I believe in the most for the coming year.
Themes for 2021
Ideally, I’m looking for a FTSE 100 stock that encapsulates all the themes I see as key for 2021. What are those themes? Firstly, I expect the UK economy to underperform in Q1, but rebound strongly in the summer and the rest of the year. This would coincide with the lifting of lockdown restrictions and better consumer sentiment.
Secondly, I think we’ll see domestically-focused businesses perform better than international-oriented ones due to Brexit. We’re already seeing teething problems with fishing companies and other exporters to Europe. So I’d want a UK-focused business if I could only pick one FTSE 100 stock to invest in this year.
Putting all of this together, I’d buy Barratt Developments (LSE:BDEV). The housebuilder generates most of its revenue from UK operations. The share price took a hit in Q1 last year when forced lockdowns meant some construction stopped. In the initial period, buying and selling properties was heavily affected.
Since bottoming out in the middle of March, the share price is up 92%. The main driver of this in 2020 was a strong second half to the year. Home completions for H2 were up 9.2% on the previous year, with forward sales for 2021 up 14.3%. One of the figures from the recent update that most impressed me was around forward bookings. For 2021, the forward order book accounts for 90% of expected home completions. This really shows what a bounce-back in demand there’s been recently.
The momentum being carried into 2021 gives me optimism that the share price of this FTSE 100 company could rally. Another driving force behind share price gains could be seen from income investors. The business is expecting to resume dividends next month with the publication of interim results. We’ll have to see what the yield will look like, but even with an average yield, it will still be a plus. Although income isn’t a primary aim of mine, if I was only going to only buy one stock this year, it certainly doesn’t hurt to receive some payout.
A FTSE 100 stock within a desirable sector
Aside from the company-specific factors mentioned above, Barratt could benefit from positive sentiment in general. Investors who think the UK economy is set to improve would look to this sector. Along with travel and retail, construction is a sector that could be bought by institutional funds as a long-term investment.
Although I’ll never just own one stock in my portfolio, I do think it’s a great idea to ask yourself the same question. By thinking about just one idea, it makes you realise which themes you believe in most, and how you’d go about finding them via a single stock.
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jonathansmith1 has no position in any of the shares mentioned. 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.