I’m searching for the best FTSE 100 shares to add to my portfolio in June. So which of these blue-chip bruisers should I be preparing to buy?
Lloyds Banking Group
Banks like Lloyds (LSE:LLOY) are among the most cyclical out there. When economic conditions are strong, demand for their loan products and credit cards can take off.
So the International Monetary Fund’s (IMF) decision to raise UK growth forecasts is encouraging. The body now expects domestic GDP to rise 0.4% in 2023. It had been predicting a 0.3% fall.
But conditions on the ground remain quite chilly for retail banks. Lloyds chalked up £242m worth of credit impairments during the first quarter as people and businesses struggled to pay back loans. Fresh data on corporate insolvencies suggests the number could continue escalating.
This week restructuring specialist Begbies Traynor announced full-year results would beat forecasts thanks to recent strong trading. It reported “strong growth” in its insolvency order book in the 12 months to April, and added that “challenges for UK businesses are expected to continue to support growth in the insolvency market.”
Lloyds also faces reduced support from higher interest rates from the second half of 2023 should (as expected) inflationary pressures ease.
Bank of England chief Andrew Bailey today told MPs that inflation in the UK had “turned the corner.” If this proves correct the institution could embark on swift rate reductions to support the ailing economy, hitting the profits the banks make from their lending activities.
For all these reasons I’m not tempted to buy Lloyds shares despite their apparent cheapness. Today the bank trades on a forward price-to-earnings (P/E) ratio of 6.2 times. It also carries a healthy 5.9% dividend yield.
BAE Systems
I’d much rather invest my hard-earned cash in BAE Systems (LSE:BA.) next month.
The defence giant’s shares are more expensive than those of Lloyds. It trades on a forward P/E ratio of 16.5 times. But this premium represents the former’s superior earnings outlook.
As I say, Lloyds looks in trouble as consumers and businesses struggle to make ends meet. And with the UK economy facing significant structural problems (like low productivity and worker shortages) things could remain tough for things to come.
But the outlook for BAE Systems is steadily improving. Russia’s invasion of Ukraine has driven arms spending higher as the West responds to the world order. Worries over Chinese foreign policy are adding to the tension too, as talk over Taiwan heats up.
As a major supplier to UK and US militaries BAE Systems is enjoying strong demand for its hardware. Indeed, the business recently praised its “large order backlog” and said it expects sales to increase 3% to 5% in 2023.
Project execution risk is an issue that could impact short-term earnings and affect future contract wins. But encouragingly, BAE Systems has an excellent track record on getting its product in action on land, in the air or at sea.
This — along with its position at the cutting edge of defence technology — makes the FTSE stock a brilliant buy right now. I’ll be looking to buy some shares with any spare cash I have to invest.
The post Which of these FTSE 100 heavyweight shares should I buy? appeared first on The Motley Fool UK.
Should you invest £1,000 in BAE Systems right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
Mark and his analyst team just revealed what they believe are the 6 best stocks for investors to buy right now… and BAE Systems wasn’t on the list. Right now, they think there are 6 stocks that are better buys!
See the 6 stocks
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
If I invest £5k in Lloyds and Tesco shares, how much passive income will I receive?
Lloyds shares pay over 5% a year in cash. But there’s more to them than that!
Should I buy 20,000 more Lloyds shares for £620 of passive income in 2024?
3 wonderful value stocks for bargain-hungry investors!
6% dividend yield! Should I buy this cheap FTSE 100 stock for a second income?
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems, Begbies Traynor Group Plc, and Lloyds Banking Group Plc. 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.