I often hear criticism that the FTSE 100 index is laden with companies nobody wants these days. Think of the banks, mining companies and old-fashioned energy firms.
Nevertheless, while buying a FTSE 100 index tracker for my portfolio may not give me explosive growth, I’m confident that seeking out the index’s high-quality individual companies to invest in is a wise long-term investment strategy for me.
As such, I’m going to discuss two FTSE 100 shares that I think are among the best I can buy now and hold for 20 years.
A long-term play with even more upside potential
My first pick is Ocado (LSE: OCDO). It has witnessed blistering share price growth over previous years. In many ways it has been the success story of the pandemic. The online grocery retailer is successfully leading the way in an industry that looks set to dominate in the future.
Ocado’s high-tech warehouses are decked out with state-of-the-art robotic systems. These robots help to process a vast number of orders each week. Furthermore, with the pandemic turbocharging the shift towards online shopping, I think Ocado is well positioned.
This reflects in the company’s recent financial performance. Earlier in the month, Ocado reported a 32.7% increase in group revenue, adding to the already outstanding performance of the company over the last few years.
However, it’s certainly not all plain sailing. My principal concern is the cost of expansion. Capital expenditure has rocketed as the group pours significant sums of money into funding its Customer Fulfilment Centres globally. Similarly, in November last year, the company acquired two robotics companies for a hefty price tag.
Both of these investments come with substantial costs and it’ll take years to discover whether or not they’re worthwhile. Furthermore, the cost of investment caused the group to post an overall loss before tax of £44m in 2020.
Nevertheless, I remain confident that it’s exactly this kind of investment that will power Ocado’s growth moving forward. In fact, I’m actually encouraged to see such heavy investment, particularly as it should continue increasing operational capacity and revenues. Therefore, I’d buy and hold for the long term. I expect strong share price growth could deliver me favourable returns over the next 20 years.
A future-proof business?
I have security software company Avast (LSE: AVST) firmly on my watchlist too. Operating with two segments, Avast offers consumer products and products for small and medium businesses.
With the pandemic adding to society’s reliance on technology, finding ways to protect personal and business data online is of paramount importance. This is where Avast steps in, offering cybersecurity protection through a range of solutions.
Earnings have increased at an impressive rate and the company maintains an impressive roughly-50% free cash flow margin.
However, as my colleague Royston Wild pointed out, hackers are becoming increasingly sophisticated and state-sponsored attacks are on the up. As such, a single high-profile failure of Avast’s cybersecurity framework could deal a fatal blow to sales and consequently, the company’s valuation.
All eyes will remain on whether or not Avast can continue to successfully navigate the dynamic nature of the cybersecurity industry.
Even so, with analysts at Berenberg outlining how Avast “offers a rare combination of growth and value”, I see the benefits outweighing the risks. I’d buy for my portfolio and hold for as long as possible.
Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has recommended Avast Plc. 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.