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2 FTSE 100 stocks I’d buy in May

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The month of May should bring many good things. A further relaxation of lockdown measures and warmer weather are two we all hope for. Added to this is the potential to find some good opportunities to buy FTSE 100 stocks. Below are two examples that I’m considering buying for the new month.

A FTSE 100 giant

First up is Rio Tinto (LSE:RIO). It’s one of the largest precious metal mining companies in the world. It has a dual listing, meaning that the stock is traded on the FTSE 100 here in the UK but also in Australia. 

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2020 results were strong, with percentage gains versus 2019 on pretty much all key metrics. Net cash up 6%, sales revenue up 3%, net earnings up 22%. Considering the responsiveness needed to deal with the pandemic, I’m impressed. The Chief Executive commented that the results “leave Rio Tinto well placed to generate superior returns for shareholders… and make a broader contribution to society.”

Buying this FTSE 100 stock could enable me to get returns in several ways. Dividend income is being paid out, with a yield at the moment of 5.41%. Given the increase in free cash flow, I think it can sustainably stay at this level. Added to this are potential gains from the share price. The share price is up 63% over the past year. If the company continues on the current trajectory of growth, I can see this rally continuing.

One risk here is that the results were enhanced due to the rising prices of precious metals. Although I don’t see gold, silver and copper prices falling significantly, I don’t see them rallying in the same way as happened in 2020. Therefore the lack of price rises could act as a drag on 2021 results.

Finding value in insurance 

The second company I rate is FTSE 100 stock Aviva (LSE:AV). It’s a well known insurance company in the UK, but services many countries around the world too. 

This FTSE 100 stock has seen its share price rise 60% over the past year. However, I think the impact of the stock market crash and rally distorts this picture. Aviva shares are down almost 6% over two years, despite the recent rally.

This stagnation can’t be put down primarily to its financials. In 2019, operating profit increased 6% to a record £3.2bn. 2020 profit was slightly lower, but this was with the backdrop of the pandemic. 

The concern for investors has been the size of the company and stagnation around operations. The structure of the business would make it difficult to change and adapt quickly to any challenges in the industry. Fortunately, it operates in insurance, which isn’t a sector that is moving at a fast pace! 

So although I get this risk, I don’t see it as a meaningful one. Aviva is also trying to address this. In the latest results it said it is focusing on simplifying the business. This was shown by the proposed sale of Aviva France and Italy.

Overall, both Aviva and Rio Tinto make good FTSE 100 stock picks for May, in my opinion. I think each is in a strong position to take advantage of 2021’s recovery opportunities as the year continues to unfold.

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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.

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