I’m searching for the best FTSE 100 shares to buy for what could be a tough year ahead. Here are three I’d like to buy with cash to invest.
Defence spending remains stable at all points of the economic cycle. This is what makes businesses like BAE Systems (LSE: BA) popular safe havens when recessionary risks rise.
The outlook is particularly strong for weapons builders today too. Russia’s invasion of Ukraine and tension over Chinese foreign policy mean Western powers continue to spend heavily on arms.
BAE Systems’ latest financials this week illustrate how robustly product demand is growing. The company has chalked up £28bn worth of orders in the year to date, it said.
Chief executive Charles Woodburn has tipped further revenues and margin growth in 2023 too, commenting that “we see sales growth coming from all sectors and opportunities to further enhance the medium-term outlook as our customers address the elevated threat environment”.
City analysts are also optimistic about the company’s prospects over the next year or so. They think annual earnings will rise 11% in both 2022 and 2023. I would happily buy BAE Systems shares, even as supply chain problems continue to threaten earnings.
High capital expenditure bills and rising energy costs are problems for utilities businesses like Severn Trent (LSE: SVT). This particular firm is expected to suffer a 38% drop in earnings this financial year (to March 2023).
But over the long term, water suppliers have a strong track record of profits growth. The essential service they provide gives them superior earnings visibility to most other FTSE 100 shares. This is why, as an income investor, I am considering buying Severn Trent shares for next year.
Forecasts suggest the utility will keep raising the annual dividend over the short-to-medium term. These bullish estimates are supported by the company’s strong balance sheet and predictions that earnings will rebound 66% next year.
Severn Trent’s dividend yields aren’t the biggest. They sit at 4% and 4.4% for fiscal 2023 and 2024 respectively. However, they still beat the 3.8% Footsie forward average. And the company’s dividend forecasts look much stronger than many others as the global economy struggles.
I already own shares in Diageo (LSE: DGE). And I’m considering adding to my holdings, given the resilience of alcoholic product demand in tough times.
Don’t just take my word for it though. City brokers think annual earnings here will rise 18% in the current financial year (to June 2023).
Diageo doesn’t just operate in a recession-proof industry. The drinks it sells also have considerable brand power. So it can raise prices during good times and bad without suffering a slump in volumes, thus allowing it to keep growing earnings.
All this explains why Diageo remains on track to grow organic operating profit 6-9% to financial 2025. I’d buy more shares even as Covid-19 lockdowns in its Chinese marketplace continue.
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Royston Wild has positions in Diageo. The Motley Fool UK has recommended Diageo. 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.