As the UK economy continues to open up, I’ve been looking for FTSE 100 shares to add to my portfolio. Here are three blue-chip companies I’d buy with £3,000 today.
FTSE 100 stocks to buy
The first on my list of blue-chip stocks to buy today is Associated British Foods (LSE: ABF). This group has been able to navigate the past 12 months better than most. Growth at its food division has helped make up for some of the declines in sales at its Primark business. As Primark has no online presence, rolling lockdowns have decimated sales. As a result, the FTSE 100 firm’s income fell 43% in 2020.
But as the economy opens up, its clothing sales will surely rise. When coupled with the steady food business, I reckon these twin tailwinds will help power ABF’s growth in the years ahead. City analysts seem to agree. They expect the company to report a net profit of £1.1bn in 2022, up from £455m for 2020. Of course, these are just forecasts at this stage.
Based on these projections, I’d buy the FTSE 100 stock for my portfolio today. I think the main risk facing the business is the threat of another lockdown. This could force the closure of the group’s clothing and lifestyle stores once again. Rising prices may also harm profit margins in the food business, which may depress overall profitability.
Another FTSE 100 recovery play I’d buy with £3k is Ashtead (LSE: AHT). Initial indications show that the UK construction sector is booming. This could have a very positive impact on Ashtead’s equipment-hire business. More construction activity is likely to translate into higher demand for the company’s tools. This could allow it to increase the number of customers served or increase prices. High prices may lead to fatter profit margins, producing large cash flows for the business to either reinvest in growth or return to investors.
But this is just me speculating. There’s no guarantee demand for Ashtead’s tools will increase, or the corporation will be able to raise prices. Competition in the tool equipment hire market is fierce. This may mean competitors push prices down to try and steal market share. That would weigh on the FTSE 100 company’s growth.
The final company I’d buy for a portfolio of FTSE 100 stocks with £3k is homebuilder Barratt Developments (LSE: BDEV). The UK is facing a chronic housing shortage, and it doesn’t look like this will change any time soon.
The lack of supply coupled with low-interest rates and government schemes, such as the recently-introduced 95% mortgage deal, may only add fuel to rising prices as we advance. For homebuilders like Barratt, this is excellent news. As property prices rise, the company’s profit may also rally higher.
The potential for rising construction costs is the most significant risk the business faces right now. If these increase, its profit margins could slump. There’s also the potential for higher interest rates. If rates rise, housing demand may fall, which could hurt Barratt’s bottom line.
Even after taking these risks into account, I’d buy the stock for my portfolio of FTSE 100 stocks today.
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Rupert Hargreaves owns no share mentioned. ConstructionThe Motley Fool UK has recommended Associated British Foods. 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.