As the UK economy starts to recover from the pandemic, I’ve been looking for reopening stocks to add to my portfolio.
With that in mind, here are two FTSE 100 companies that I would buy as recovery plays.
FTSE 100 champion
The first company is retailer Next (LSE: NXT). At the beginning of the pandemic, shares in this retailer plunged after it shut all warehouses and stores to protect staff. However, the group soon decided to reopen its online business, and demand boomed. It had to stop taking orders because demand was so high.
This set the tone for the rest of the year. While the company’s bricks-and-mortar stores were closed, online sales surged. As a result, the FTSE 100 corporation has been able to navigate the pandemic exceptionally well. And now, as the economy begins to recover, I think it could be one of the best reopening stocks to buy.
As Next’s stores reopen, they will only add to the company’s existing online growth. I think these twin tailwinds will help turbocharge the FTSE 100 organisation’s sales and profit expansion as we advance.
That being said, I’m well aware that the fashion industry is incredibly competitive. Next needs to invest heavily to remain at the forefront of consumers minds. If it stops, the company could go the way of Philip Green’s Arcadia. This is probably the biggest challenge facing the business. But it is also facing healthy competition from online retailers. These competitors could eat into Next’s bottom line.
Despite these risks and challenges, I believe this is one of the best reopening stocks. That’s why I’d buy FTSE 100 retailer Next today.
As mentioned above, the retail industry is incredibly competitive. JD Sports (LSE: JD) has tried to carve out a niche for itself in the industry by concentrating on sportswear and trainers.
This strategy has worked incredibly well. Profits have exploded over the past 10 years, and management has been using this income to expand the business.
I believe JD should benefit from the same tailwinds as Next. The company has performed relatively well throughout the pandemic thanks to its online business. Now the stores can reopen, these will provide another income stream to support profit growth.
JD may also be able to capitalise on the failure of competitors by snapping up new premises at discounted rates. This could be an opportunity for the group, but it could also be a risk. Many companies have run into problems after over-expanding, and JD is not going to be immune.
The business also need to ensure it maintains good relations with suppliers. Its main advantage over its peers is the fact that it stocks the latest products for customers. If management lets the company’s product range go stale, customers may go elsewhere.
Based on its track record of growth, I would buy this FTSE 100 company for my portfolio of stocks today.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Next. 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.