If I had £2,000 to invest in FTSE 100 stocks, I’d concentrate on the market’s tech leaders. With that in mind, here are two blue-chip stocks I believe are uniquely positioned to profit from the rise of technology.
FTSE 100 tech stocks
The first company on my list is Next (LSE: NXT). Some investors may be surprised to learn that this fashion business, which is traditionally associated with bricks-and-mortar retail stores, is actually one of the largest online retailers in the UK.
Over the past decade, the company has invested hundreds of millions of pounds building out its online operation. It has built new warehouses and introduced systems and processes to help it prepare for the future.
This investment paid off last year. The FTSE 100 group’s sales before the coronavirus crisis were equally distributed between physical and online. However, last year online sales eclipsed brick-and-mortar sales.
While online sales may not continue to grow at the rate they did in 2020 as we advance, it’s clear e-commerce is here to stay. Companies not investing to capitalise on this will be left behind.
Next’s management has also been making the most of the retail environment over the past 12 months to renegotiate rental contracts with landlords. This will push down the group’s overall cost base.
Management’s forward-thinking is the primary reason why I’d include this FTSE 100 stock in my portfolio today.
However, retail is incredibly competitive. Next has performed relatively well over the past 12 months, but many of its peers haven’t. As a result, the company needs to make sure it stays on top of market trends. If management starts to take the corporation’s success for granted, growth could grind to a halt. This is the most considerable risk facing the stock today.
The future of retail
Before the pandemic, many analysts didn’t know what to make of Ocado (LSE: OCDO). The FTSE 100 company was spending hundreds of millions developing its robotic warehouses to process grocery orders. But, unfortunately, take-up was low, and profits were non-existent.
That all changed last year. Demand for the company’s services exploded. Demand was so high, at one point, the group had to stop taking on new customers.
I think the pandemic has shown how useful Ocado’s technology can be to other retailers. The company is also planning to expand its own operations in the UK using the customer goodwill built up over the past 12 months as a springboard.
Still, despite the company’s potential, it remains highly speculative. It could be some time before Ocado earns a consistent profit. In the meantime, it’s fighting a lawsuit over the patents it uses for its automated warehouses. Losing this fight could have a severe impact on the firm’s growth.
Even after taking these risks into account, I’d buy the FTSE 100 stock for my portfolio, considering the company’s growth potential.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Next. The Motley Fool UK has recommended Ocado Group. 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.