This year is whizzing by and I’ve started to look at my investment strategy for 2023. In my Stocks and Shares ISA, I own many global shares. But today, I’m focusing on my FTSE 100 top picks.
According to the Bank of England’s governor, the UK economy is recovering dramatically worse than the EU and US. Higher interest rates are likely to limit any speedy recovery next year, in my opinion.
So it’s worthwhile noting that FTSE 100 companies generate over 75% of their sales from overseas. This makes them more resilient to UK-specific challenges.
In addition, shares in this large-cap index tend to have more exposure to energy, pharmaceuticals, and consumer staples than many other stock indexes.
These sectors have thrived this year, and I reckon they will continue to do so in 2023. As such, my top Footsie picks include shares from these industries.
FTSE 100 top picks
So which FTSE shares would I buy today? First, I’d pull the trigger on oil giant BP (LSE:BP.). I already own of its shares, but I’m ready to buy some more. Its share price is already up by 45% over the past year, making it one of the best performing stocks in the FTSE 100.
Oil giants including BP are oozing cash flow right now. That’s partly due to energy prices remaining elevated. As a result, BP expects to deliver $4bn in annual share buybacks. It also plans on raising its dividend by 4% every year until at least 2025.
BP is also relatively cheap compared to its US peers. With a price-to-earnings ratio of just five, that’s around half that of US competitor Exxon Mobil.
Bear in mind the long-term outlook for BP is less clear. Although it is focused on a shift to renewables, the transition will create uncertainties. For instance, what will its profits and margins look like as the world shifts to electric vehicles?
Overall though, I reckon BP shares are cheap right now and could continue to be winners in 2023.
Next, I’m looking at global pharmaceutical giant Astrazeneca (LSE:AZN). With a market capitalisation of over £167bn, it’s the largest company in the FTSE 100 index. But it wasn’t always this large. Astrazeneca’s CEO Pascal Soriot has turned it around over the past decade to become a global powerhouse.
It put great focus on research and development (R&D). As such, its R&D budget is one of the highest among its peers, at around 23% of its sales. It also streamlined its business into oncology, biopharmaceuticals, and rare diseases.
Cancer treatment forms the largest part of Astrazeneca’s sales and it’s likely to continue to be a key driver for its growth over the coming years. The transformation is paying dividends.
No doubt Astrazeneca, like all pharma businesses will face challenges. Patents expire, which can open up competition. Clinical trials can fail. And big pharma can attract large lawsuits. All of which can affect profit margins.
That said, it’s also exactly the type of company that I want to own in an economic downturn. Its defensive characteristics should protect my portfolio from large swings while offering solid long-term growth.
I’ll be buying these shares soon to hold throughout 2023 and beyond.
Harshil Patel has positions in BP. 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.
Motley Fool UK 2022