As some markets have touched record highs in recent months, many investors have become sellers rather than buyers. But I continue to see some shares whose long-term prospects I like so much I consider them potential shares to buy now for my portfolio.
Let’s imagine I had £20,000 to put to work in the stock market today. If I was looking for a mixture of growth and income potential from blue chip names, here’s how I might do it. I would diversify across five sectors to reduce my risk, putting £4,000 into shares of a leading company in each one.
Digital giant: Alphabet
One of the ways I sometimes first become aware of businesses I could invest in is through using them as a customer.
Like many people, one company I interact with many times a day as a customer is Alphabet (NASDAQ: GOOG), the parent company of Google. The internet giant is ubiquitous in many people’s daily lives. From search to email, Google is the front page of the internet for hundreds of millions of users worldwide.
I think that has helped it build a level of customer loyalty that should help Alphabet remain profitable for decades to come. Its business model of selling targeted adverts is highly lucrative. But Alphabet has evolved into a diverse set of revenue streams, so that it is not purely reliant on ad income. With profits last year of $72bn, it is hard to remember that the company is little over a couple of decades old.
I like Google shares as an idea for my portfolio because I see them as a sort of royalty on future internet use. In the long term, I expect internet use to keep growing substantially. With its huge user base and proprietary technology, Google is set to continue being a key beneficiary. If profits continue to rise over time I expect the shares to do well, even if there are bumps along the road.
There is a risk that Google could become less popular with younger users as some social networks have done, which could hurt revenues and profits.
Banking shares to buy now: Lloyds
I think a recent pullback in the Lloyds (LSE: LLOY) share price offers a buying opportunity for me.
Over the past year, the shares are up 27%, at the time of writing this article earlier today. I still think there is a long-term growth story here, though. As the UK’s leading mortgage lender, the company is well-positioned to benefit from ongoing strength in the housing market. It is also looking to expand its business lines. For example, it has set out ambitions to grow its own letting property portfolio. I think there is a risk that could distract management from its core business. But if it works out, it could well add to the company’s profitability.
I also expect good news on the company’s dividend in 2022. It has a growing cash surplus, at least some of which could be put to use by boosting the dividend in line with Lloyds’ progressive policy. But dividends aren’t guaranteed and any downturn in the economy is a risk for the bank. Higher borrower defaults could hurt profits.
Consumer goods leader: Unilever
With an eye on the long term, another name on my list of shares to buy now for my portfolio is Unilever (LSE: ULVR).
The consumer goods company owns popular brands from Dove to Hellmann’s. I like its broad portfolio of premium brands, which gives it pricing power. I also like the fact that it is highly exposed to a full gamut of markets. It does a lot of business in developing markets like India and Indonesia, as well as developed ones. That brings a risk that when there are economic downturns, revenues may fall. But it offers the benefit that, as more people worldwide increase their disposable income, Unilever can benefit from some of their spending.
For several years, the company has underwhelmed investors. In the past year, for example, the Unilever share price has slipped 8%. Some of the reasons for underperformance remain as risks. For example, rampant cost inflation could lead to lower profit margins. But I see the price fall as an opportunity to pick up a quality blue chip company for my portfolio at a more attractive price than before.
Energy titan: ExxonMobil
There’s a lot of discussion about future energy demands. No matter what may happen, one of the companies I reckon should keep doing well is energy giant ExxonMobil (NYSE: XOM).
I don’t think oil demand will disappear any time soon. In fact, unlike many commentators, I don’t even expect it to decline. While some customers may switch to alternative energies, the global customer base keeps increasing with population growth. I think that will compensate for some customers abandoning oil. With its huge operations and recent efforts to lower production cost per barrel, Exxon should keep pumping profits from its oil wells for decades. It also has a large natural gas business which I think has a promising future.
On top of that, if alternative energy really does become a big thing, I think the company’s expertise will stand it in good stead to develop a strong market position.
Energy pricing is cyclical, so the Exxon share price can be volatile. I like its income prospects, though. Having raised its dividend annually for over three decades, the iconic company currently offers a 5.7% yield.
High yield tobacco: British American Tobacco
I’d also buy British American Tobacco (LSE: BATS). The owner of famous tobacco brands including Rothmans, Camel, and Pall Mall pays a yield of 8%. That makes it one of the juiciest income shares right now in the FTSE 100.
There’s clearly a risk here. As cigarette use declines in many markets, it could hurt both revenues and profits at the company. But I think the yield helps to compensate me for that. The company has been developing non-cigarette products, including vaping and heated tobacco. They could help it grow revenues in coming years. Last week, it guided the market to expect revenue growth of over 5% for the year, adjusted for currency fluctuations. With its broad portfolio and iconic brands, BAT makes my list of five blue chip shares to buy now for my portfolio and hold for the long term.
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Christopher Ruane owns shares in ExxonMobil, British American Tobacco and Lloyds Banking Group. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), British American Tobacco, Lloyds Banking Group, 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.