The FTSE 100 index is the main stock index in the UK. It is made up of the biggest 100 companies listed in the UK, ranked by market capitalization.
The largest FTSE constituents by market capitalization are Unilever, AstraZeneca, HSBC, and Diageo, among others. These four companies have a market capitalization of more than £76 billion. In this article, we will look at the top 5 FTSE 100 stocks to invest in.
How to invest in FTSE 100 stocks
A common question among American investors is how to invest in FTSE 100 stocks. There are three main ways of doing this.
First, you can invest in ETFs that track the FTSE 100 index or its sub-sectors. Some of the most popular of these funds are the iShares Core FTSE 100 fund and the Vanguard FTSE 100 fund.
Second, you can invest in companies in the index that are dual-listed in the United States. Some of these firms are Barclays, Unilever, Royal Dutch Shell, and Prudential, among others.
Finally, you can invest in American Depositary Receipts (ADRs). ADRs are offered by all popular brokers in the United States like Robinhood, Webull, and Schwab.
Lloyds Bank (LLOY)
- Industry: Finance.
- Market Cap: £33 billion.
Lloyds Banking Group is a leading financial institution in the UK. It is known for its eponymous brand, Halifax, Bank of Scotland, Black Horse, and Scottish Widows. Unlike other banks in the FTSE 100 like HSBC, Barclays, and Standard and Chartered, Lloyds is the most domestic since it does not have major branches internationally.
Lloyds Bank offers banking services to individuals and businesses. In this line, it is the biggest mortgage provider in the UK. It is also one of the biggest credit card providers and funders of small businesses in the country.
There are several benefits of investing in Lloyds Bank. First, it is a domestic bank that does well when the UK economy expands. As such, it is often seen as a proxy for the overall health of the economy.
Second, after reporting large losses in 2020 because of the pandemic, the bank has committed to rewarding investors with dividends and buybacks substantially. This strategy is supported by its substantial capital in its balance sheet. For example, it has a CET ratio of 16.2%, which is above the required one.
Finally, the management has done a lot to automate bank operations and cut costs, which will lead to substantial returns for its shareholders.
Flutter Entertainment (FLTR)
- Industry: Gaming.
- Market cap: £23.98 billion.
The gaming and gambling industry is doing well globally. This is evidenced by the ongoing wave of large consolidation around the world. Recently, Caesars completed the acquisition of William Hill. And Entain recently rejected an offer by MGM.
Flutter Entertainment is the biggest gaming company in the UK. It owns popular brands like Sky Casino, Paddy Power, BetFair, Fanduel, FoxBet, and PokerStars, among others. In 2021, the company was said to be planning a spinoff of Fanduel, which is one of the biggest fantasy sports companies in the United States.
Flutter’s business has been growing rapidly, helped by its diversified business, its market share, and evolving products. As such, the company’s share will likely keep rising as the industry grows.
- Industry: Gaming.
- Market cap: £10 billion.
Entain Group is a company that is relatively similar to Flutter Entertainment. It was previously known as GVC Holdings. It operates in the sports betting and online gambling sectors. Some of its well-known brands are companies like Bwin, Ladbrokes, Coral, Sportingbet, Gala Casino, and Party Casino.
Entain is also known for an unsolicited offer by America’s MGM, which wanted to acquire the company for more than $11 billion. The company turned down the offer saying that it undervalued the firm. MGM then refused to make a counter-offer.
To a large extent, Entain Group was right, considering that the company is seeing strong growth and high profitability. In 2020 alone, the firm generated a profit of more than 529 million euros.
Some of the top reasons why Entain is a good FTSE 100 stock are its strong growth, high profit margins, and the strength of its brands.
- Industry: Homebuilding.
- Market cap: £9.98 billion.
The housing market has emerged as among the best performers in the UK. Indeed, the UK house prices have jumped to a record high because of low interest rates and other government incentives. As such, UK homebuilders have done relatively well.
Persimmon is one of the three FTSE homebuilding companies. The rest are companies like Taylor Wimpey and Barratt Developments. All these make a good investment, but Persimmon is a better company to invest in because of its growing market share and the fact that it is cheaper than the rest.
While UK homebuilders are good investments, the only risks are that the housing market could start slowing down as interest rates rise and as the government returns the stamp duty. Also, the housing market is known for its cyclical nature, meaning that today’s boom could lead to tomorrow’s bust.
- Industry: Energy.
- Market cap: £66.8 billion.
BP is the biggest oil and gas supermajor in the FTSE 100. The company is well-known for its Deepwater Horizon spill in 2010.
The BP share price declined sharply during the spill and during the coronavirus pandemic. The latter event pushed the company to scale down some of its operations and sell some of its assets. At the same time, the company decided to invest billions of pounds in green energy like solar and wind.
Therefore, while BP is a risky company to invest in, there are several reasons why it is a good stock.
First, like most supermajors, the stock is relatively cheap because of the ongoing outflows by ESG investors.
Second, the company has committed to boosting dividends and buybacks after it managed to reduce its debt load. Finally, BP will likely be a big winner as it transitions its business to solar and wind.
The FTSE 100 is one of the leading indices in the world. It is also one of the cheapest indices to invest in. In total, it has a price-to-earnings ratio of 13.6, which is substantially lower than the S&P 500 average of 40. In this article, we have identified some of the best companies from FTSE 100 to invest in.