Shares to buy: a FTSE 100 stock for my ISA

I think this is a FTSE 100 share to buy right now in my Stocks and Shares ISA and hold for the long term for potential compounding capital and income gains.

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When it comes to searching for shares to buy, it’s worth remembering that a Stocks and Shares ISA is a good place to hold them for the long term. ISAs have flexibility and tax advantages. There are no restrictions about when I can draw money out. And my ISA serves as a useful addition to my retirement planning.

High-quality businesses

I’m always searching for shares to buy that can be held for the long term. My plan involves ploughing all returns back into my investments. For example, there could be dividends and capital gains crystallised when I sell shares. Sometimes cash returns arrive in my ISA account because of various corporate actions by the underlying company. And I reinvest it all in pursuit of compounding my gains.

But with long-term investments, compounding can happen in a second way within the underlying business. When companies make money, they can reinvest some of it into their businesses to drive growth. Earnings can then rise and the process repeats. When growth like that happens, the share price and shareholder dividends often rise to reflect those compounding gains in the enterprise. However, nothing is guaranteed and companies can perform poorly too, causing dividends and share prices to fall and me to lose money with my ISA shares.

Nevertheless, I’m keen to embrace the risks that come with stocks because the potential gains are often higher than the returns available from holding cash savings. To me, it’s all about balancing risk against potential rewards. And I try to minimise the possibility of losing money on shares in my ISA by focusing on the quality of a company’s operations.

For example, the FTSE 100‘s Smurfit Kappa (LSE: SKG) is achieving double-digit percentage returns against equity and invested capital. And the operating margin is running just above 10%.

Why I think Smurfit Kappa is share to buy

The paper-based packaging provider has seen stable demand for its products in recent years. And part of that has come from serving the fast-moving consumer goods and parcel delivery sectors. In today’s digital retail world, market trends in the sector favour the business. And Smurfit has been working on reinvesting in growth projects to boost future earnings.

City analysts expect earnings to increase by almost 5% this year and more than 15% in 2022. meanwhile, with the share price near 3,791p, the forward-looking earnings multiple is around 15 for next year. And the anticipated dividend yield is almost 2.9%. I think the valuation is undemanding for a thriving business with growth on the agenda.

At the end of April, Smurfit Kappa reported a “strong” first-quarter performance. And the directors expect “accelerated” revenue and earnings growth through the rest of 2021. Of course, nothing is guaranteed, and if the company doesn’t meet earnings expectations, the shares could fall in value.

And one of the risks is Smurfit Kappa isn’t the only packaging provider in the market. There are many. So competition is at a high level. Nevertheless, the company is a big player with worldwide operations and a strong trading and financial record. I’d embrace the risks and buy the shares to hold for at least 10 years and probably longer as the company’s growth strategy plays out.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share 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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