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I’d buy these 2 FTSE 100 shares for my new year portfolio

A young black man makes the symbol of a peace sign with two fingers
A young black man makes the symbol of a peace sign with two fingers

At the end of every year, I like to review my current portfolio and think about ways to improve it. This assessment process was probably one of the only benefits of 2022 being such a tough year, as it gave me a lot of areas to improve.

My value investments suffered over the year, with the already low stock prices falling even further. Likewise, my small selection of growth holdings saw a significant reduction in their price-to-earnings (P/E) ratios. The only promising group was the dividend portion, which provided a consistent source of passive income.

I am keen to diversify further as 2023 nears, and to increase my dividend allocation. One of the ways I plan to do this is by looking for quality companies that are trading at reasonable prices. This approach focuses on solid fundamentals first, then narrows potential options by price.

Unilever

The first stock on my list is Unilever (LSE: ULVR), one of the largest consumer goods companies in the world. It provides a wide range of personal care, food, and home products. The stock price has been fairly stable over the years and has risen by just over 3% in 2022. However, it is still down 13.2% from pre-pandemic levels.

The stock currently offers a dividend of 3.6% but is forecast to hit 3.7% next year. This yield has been paid consistently for the last 30 years and can be comfortably covered by earnings per share (EPS) with a dividend cover ratio of 1.5.

The underlying fundamentals are strong, with significant profit margins, reasonably low debt levels, and sound free cash generation. Turnover is also forecast to grow by 13.3% next year, considerably above its three-year average of just 0.9%.

Despite the downward share price trend since before the pandemic, it still has a P/E ratio of 17.7. This is above the FTSE 100 average P/E of around 14, so could be considered slightly expensive.

Nonetheless, I think the solid underlying fundamentals, and track record of strong performance, are worth paying a premium for. Therefore I will add Unilever to my new 2023 investment portfolio shortly.

Hargreaves Lansdown

The second company on my list is Hargreaves Lansdown (LSE: HL). It operates a range of investor services in the UK, such as managed funds and support services. Unlike Unilever, this stock has suffered considerably over the last few years. It has fallen almost 40% in 2022 and now has a P/E ratio of around 16.

Despite this poor stock price performance, the fundamentals are very strong. The return on invested capital (ROCE) is high at nearly 45%, combined with very low debt levels. Also, turnover and profit are expected to grow significantly next year, considerably above their three-year average.

Still, I think it is important to remember some of the reasons for the recent poor stock performance. The company has struggled with negative publicity surrounding the Woodford fund collapse and its alleged role in this debacle. Also, analysts have been questioning whether a fall in investment activity after the pandemic may reduce the company’s earning potential.

Nevertheless, I think this is a prime example of a high-quality company with strong profit margins that is still trading at a reasonable price. So I am keen to add to my position when I get the cash.

The post I’d buy these 2 FTSE 100 shares for my new year portfolio appeared first on The Motley Fool UK.

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Gabriel McKeown has positions in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown and Unilever. 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 2022