Right now might seem like a bad time to get involved in the stock market. However, I’m optimistic about the outlook for UK shares, particularly FTSE 100 shares, in 2021 and beyond. I think buying a basket of these companies could produce large total returns over the next decade. They’re suitable because I’m willing to look past short-term uncertainty.
FTSE 100 shares for 2021
Many high-quality, blue-chip stocks are now selling at deeply discounted valuations. I think some of these opportunities are too good to miss.
For example, shares in life insurance and asset management group Standard Life, are currently selling at a multi-year low.
To me, this valuation seems unwarranted. The company has suffered a small decline in activity due to the coronavirus, but it remains one of the largest asset management groups in the UK. It also has a large presence overseas. In recent years, management has been selling off non-core international businesses and returning the cash to investors.
This asset disposal program has helped support the company’s near 10% dividend yield, which looks extremely attractive in the current interest rate environment.
Another FTSE 100 stock that’s currently on my radar is catering group Compass. As this business specialises in providing catering services for events, it has seen revenues drop off a cliff in 2020. Unfortunately, the business will continue to face a level of uncertainty until the coronavirus pandemic has subsided.
However, people will always need to eat and drink, so there will always be a market for Compass’ services. As one of the largest catering groups in the world, this company has a tremendous competitive advantage over the rest of the industry. This could help the business recover quickly when the market eventually turns around.
I’ve also got my eye on FTSE 100 pest control group Rentokil Initial. Figures show that global warming has contributed to a dramatic increase in pests. That’s bad news for most, but great news for Rentokil’s bottom line.
Over the past few decades, this company has grown steadily through word-of-mouth and acquisitions. It’s one of the largest companies in the pest control industry, and it has substantial economies of scale. These advantages should help the business maintain its position in the market, and stay ahead of the competition.
Finally, I think one may benefit from owning a few shares of Rolls-Royce in the long run. This could be a high-risk investment as the FTSE 100 company is almost certain to face further turbulence in the next few years.
Still, Rolls’ key competitive advantage is the company’s intellectual property, which is worth its weight in gold. And now that the business has raised enough money to keep the lights on for the foreseeable future, Rolls has headroom to live up to its full potential. If the corporation can return to growth in the next few years, I reckon investors buying today may see large returns on their initial investments.
The post £5k to invest? I’d buy these FTSE 100 shares for 2021 and beyond appeared first on The Motley Fool UK.
Rupert Hargreaves owns shares in Standard Life Aberdeen. The Motley Fool UK has recommended Compass 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.
Motley Fool UK 2020