As the UK economy continues to recover from the pandemic, I’ve been looking for FTSE 100 stocks to add to my portfolio. There are a couple of companies that have attracted my attention. However, with much of the world still fighting the virus, a cloud is hanging over these enterprises.
The question is, can my favourite FTSE 100 recovery stocks fight off the uncertainty and prosper?
FTSE 100 recovery stocks
I think the resource sector is currently one of the most attractive sections of the market. I hold this view because governments worldwide are spending heavily to try and reignite economic growth after the pandemic.
This spending is already having a significant impact on commodity prices. The prices of essential commodities, such as coal, oil, copper and iron ore, are all trading at, or close to, all-time highs.
Investors don’t have to look far to see how these high prices are affecting commodity producers. In the past couple of weeks, some of the FTSE 100’s top resource stocks, such as BHP, Anglo American and Rio Tinto, have all reported bumper first-half profits. As profits have boomed, they’ve unleashed a tidal wave of cash to investors in the form of dividends.
Rio has been the star performer. Thanks to surging iron ore prices, the group recently reported half-year earnings that exceeded all of its income for 2020. Off the back of this stand-out performance, management declared a total dividend of $9.1bn, the largest in the company’s history.
These cash return plans are the main reasons why I’d buy these stocks for my portfolio today. And alongside the FTSE 100 miners outlined above, I’d also buy Glencore and Royal Dutch Shell.
Glencore hasn’t yet reported its figures for the first half. Still, the firm recently said earnings before interest and tax would be at the top end of its $2.2bn-$3.2bn guidance range after a solid first half for its commodity trading business. Meanwhile, Shell recently reported earnings of $5.5bn for the second quarter, the highest levels since 2018.
Should I buy?
I think these figures show just how well all commodity companies are performing today. However, I’m hesitant to buy these FTSE 100 stocks because the commodity industry is highly cyclical. Just because profits are booming today doesn’t necessarily mean they’ll continue to do so.
Indeed, if there’s another resurgence of coronavirus around the world over the next few months, the global economy could shut down again. This could send commodity prices plunging. As such, I’m not willing to invest a significant amount in these companies.
However, I am willing to buy a basket of these FTSE 100 stocks as a small percentage of my portfolio. I think this approach will limit risk while giving me exposure to the rapidly rebounding global economy and rising commodity prices.
As these companies produce everything from diamonds to coal, oil, renewable energy and rare earth metals, I think they offer one of the best ways to gain broad exposure to many different markets with just a few clicks.
Rupert Hargreaves 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.