I think there’s a range of blue-chip stocks in the FTSE 100 that could be great additions to my portfolio ahead of the delayed economic reopening next month.
I’d concentrate on buying what I believe to be undervalued equities which could benefit from both an increase in sales profitability and renewed investor interest.
Here are two FTSE 100 stocks I already own and would buy more of, and one stock I’d add to my portfolio.
FTSE 100 landlords
These companies have always followed a relatively straightforward business model. They own commercial properties around the UK with assets split across retail and office to provide some level of diversification.
This approach has worked well in the past. But it fell apart last year. Thanks to rolling lockdowns, the real estate investment trusts faced the prospect of having no tenants in their offices and no tenants or customers in their brick-and-mortar stores.
The landlords have also been banned from evicting tenants who don’t pay their rent. This ban is going to remain in place until next year.
All of these issues have, understandably, impacted investor sentiment towards the companies. However, I think that should begin to change next month.
Initial indications show consumers are already returning to stores. At the same time, workers are returning to offices, and the demand for new office space is recovering.
In its annual results for the year ended 31 March, Landsec noted that 50 retail brands had opened stores across its portfolio in the 12 months. Meanwhile, British Land said it had leased 556,000 sq ft of office space between 1 April 2020 and the end of this May.
Based on initial indications, I think these trends may continue. That’s why I already own these stocks and would buy more of the FTSE 100 companies for my portfolio today.
Unfortunately, the recovery isn’t guaranteed. Demand for property may never reach pre-crisis levels, which means the value of both companies property portfolios may remain permanently impaired. A slower-than-expected recovery is the biggest challenge these real estate investment trusts face.
As well as the real estate investment trusts outlined above, I would also buy FTSE 100 bank HSBC (LSE: HSBA). I believe this is one of the most undervalued FTSE 100 financial companies. It’s trading at a significant discount to book value per share, despite its growth potential.
The bank has been selling off non-core, underperforming business divisions recently. The latest is its French entity, which it’s selling at a loss. These asset disposals should help reduce costs and improve profit margins.
At the same time, the bank is investing more in its Asian operations. These have historically been a profit centre for the enterprise.
Overall, I’m encouraged by the shift to Asia. That’s why I’d buy the stock for my FTSE 100 portfolio today.
The biggest challenge the group faces right now is low interest rates. These are holding back profit margins, and there’s no telling how long they’ll last. If interest rates remain depressed for years, the bank may never return to pre-crisis levels of profitability.
Rupert Hargreaves owns shares of British Land Co and Landsec. The Motley Fool UK has recommended British Land Co, HSBC Holdings, and Landsec. 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.