Investing in the FTSE 100 today may not seem to be a worthwhile move. After all, the index faces a number of risks that could derail its progress in the short run.
For example, there is an election just around the corner, Brexit looks set to dominate political discussion in 2020 and the threat of a global trade war is very real.
However, these risks could make now a good time to buy shares. Many stocks seem to trade on low valuations that could lead to high returns in the long run.
With that in mind, here are two large-cap shares that could be worth buying in a tax-efficient account such as an ISA.
The recent trading update from Premier Inn owner Whitbread (LSE: WTB) highlighted the progress it is making with its strategy. It is continuing to open new hotel rooms in the UK, where demand has been robust despite an uncertain economic outlook. It is also accelerating its international growth plans, with Germany being a key market for the business in this respect.
Alongside its growth strategy, the company is aiming to reduce costs. It is implementing new technology to become more efficient, which could help to support margins at a time when consumer confidence is weak. A more efficient business model may make the company more competitive versus peers, and could enable it to be more aggressive on price while consumer spending levels are relatively weak.
Looking ahead, Whitbread is forecast to post a rise in its bottom line of 19% in the next financial year. its price-to-earnings growth (PEG) ratio of 1.2 could mean that it offers growth at a reasonable price. As such, now could prove to be the right time to buy a slice of the business and hold it for the long term.
Another FTSE 100 company that may deliver surprisingly strong earnings growth is Tesco (LSE: TSCO). It is expected to produce an increase in its bottom line of 10% in the current year. This puts it on a PEG ratio of just 1.6, which could mean that it offers a wide margin of safety.
Certainly, the supermarket sector is a tough place to do business. Competition is high, consumer spending habits are changing in terms of there being a switch towards online grocery ordering, and consumer confidence is weak. These threats look set to remain in place over the medium term, although Tesco’s strategy of improving its product range and cutting costs seems to be improving its customer satisfaction levels.
In addition, the stock is expected to increase its dividend payments so that it yields 3.9% next year from a payout ratio of 50%. This could mean that it becomes an increasingly attractive income share, and offers an improving total return in the coming years.
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Peter Stephens owns shares of Tesco and Whitbread. The Motley Fool UK has recommended Tesco. 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.
Motley Fool UK 2019