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2 FTSE 100 stocks I’d buy as the blue-chip index hits record highs

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Image source: Getty Images

On 23 April, FTSE 100 stocks rallied to send the UK’s premier index to a record close for the second day running. It finished at 8,044 points.

Mind you, it’s been a long time coming. The Footsie was last above the 8,000 milestone in February 2023!

Still, there are opportunities, in my eyes. Here are two FTSE 100 shares I’d buy today with spare cash sitting idle.

Attractive business model

Many new investors focus on the strength of a company’s technology, which is understandable. After all, a technological edge is certainly not a bad thing. But it’s not everything.

A company can have the best cutting-edge tech around, but if its business model is substandard then it’s unlikely to make for a winning stock. Business models matter, a lot.

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Which brings me onto InterContinental Hotels Group (LSE:IHG). It operates in the hospitality industry using an asset-light business model centred around franchising and management contracts.

This means IHG owns very few hotels itself. It licences its brands, including InterContinental, Holiday Inn, and Crowne Plaza, to third-party operators. These pay it initial fees, ongoing royalties based on revenue, and fees for things like training programs for hotel staff.

This model allows IHG to expand its global brand presence without the significant costs of owning and maintaining hotel properties. Consequently, it has high returns on capital and a 23% operating margin.

The share price is up 62% in five years, driven higher by a post-pandemic travel boom and strong earnings growth.

Last year, the firm reported an impressive operating profit of $1bn, while adjusted earnings per share grew 33%.

One issue I’d highlight though is that the firm is still carrying a fair bit of debt from the pandemic. This doesn’t worry me too much as it has strong financials, but it’s something worth keeping an eye on.

Looking ahead, IHG has earmarked India as an attractive growth market. It has a strong pipeline of 45 hotels due to open there in the next three to five years.

The stock is currently trading on a forward price-to-earnings (P/E) ratio of 23. That’s not overly expensive for a quality asset-light business, in my opinion.

Still on a discount

The second stock I’d buy even with the Footsie at a record high is Scottish Mortgage Investment Trust (LSE: SMT). I’ll keep banging the drum for this one while ever it is trading at a discount to net asset value.

Currently that discount is 10%. This means I can invest in the trust‘s portfolio of high-octane growth stocks on the cheap. And I like the sound of that.

One risk with Scottish Mortgage shares is that they can be extremely volatile due to the high-growth investing strategy.

Looking at the top holdings though, I find it hard to believe that many of them won’t be much more valuable in future. Take Amazon, for example. Forecasts see it generating $1trn in revenue by 2030.

Meanwhile, SpaceX achieved nearly 100 orbital rocket launches last year, up from 61 in 2022. That was more than China and Russia combined!

Valued at $180bn in December, SpaceX is the world’s second most valuable private firm. It’s only behind TikTok’s parent company ByteDance, which is also in the Scottish Mortgage portfolio.

The post 2 FTSE 100 stocks I’d buy as the blue-chip index hits record highs appeared first on The Motley Fool UK.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Scottish Mortgage Investment Trust Plc. The Motley Fool UK has recommended Amazon and InterContinental Hotels Group Plc. 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 2024