Top 5 ideas for picking stocks on The Financial Times Stock Exchange 100 Index

  • Nov 23, 2019 GMT
  • Team Kalkine
Top 5 ideas for picking stocks on The Financial Times Stock Exchange 100 Index

FTSE 100 is the most prominent and the most recognized index of the London Stock Exchange maintained by the FTSE Russell company. The Index which is representative of the top one hundred of the largest companies of the exchange not only in terms of revenue but also constitutes not less than eighty percent of the market capitalization of the exchange itself at any point of time. The index is so important that its performance is often seen as a reflection of the performance of the London Stock Exchange itself. However, the index over the years has become more international in flavor than it is British, there has been an increasingly a greater number of companies finding place on the exchange that are international and multinational corporations, a significant part of whose revenues come from foreign countries outside of the United Kingdom.  This international flavor of the FTSE 100 index also makes it ideal to gauge the performance of not only domestic funds but also international investment funds that invest in equity assets in a number of different geographies. The performance of this Index along with its cousins - the FTSE 250, the FTSE All Share index are also often studied as a proxy for the British Economy itself, so much so that long term co-relation between policy decisions and its reflection on these indices is very much a part of the decision making process of the Bank of England.

The constituent companies of the FTSE 100 index are the largest and the most influential companies of United Kingdom. They companies on the exchange have a diversified revenue base and are also the largest among all dividend payers in the London Stock Exchange in terms of total value of dividend distributed to shareholders and are also considered to be the least risky of all other constituent companies of the exchange itself. Having said that, below are the top five ideas in order to pick up quality stocks for portfolios conforming to different investment philosophies and styles, from the FTSE 100 Index.

  1. Top Dividend paying stocks from FTSE 100 – FTSE 100 companies are the highest dividend paying companies on the London Stock Exchange. The companies due to their sheer size and diversity of revenue base are able to withstand adverse economic and business conditions. They are also consistent dividend paying companies whom the investors can trust despite the business scenarios. During times of economic downturn when the returns from other investment avenues may be falling, the return from a portfolio of companies comprising FTSE 100 dividend paying companies may actually provide superior returns. Top dividend paying companies on the FTSE 100 index are Micro Focus International Plc, Imperial Brands Plc, BP Plc, Rio Tinto Plc, British American Tobacco Plc, Standard Life Aberdeen Plc, Barratt Developments Plc, Royal Dutch Shell Plc and Reckitt Benckiser Plc.
  1. Investing in multinational and international companies – The FTSE 100 index is also home to the largest multinational and international companies listed on the London Stock Exchange. Because these companies have a wide multinational business presence, they are least affected by economic conditions that may be impacting any particular geography. Hence any investor intending to build a low risk portfolio of large companies that are least affected by the economic conditions in the United Kingdom will pick stocks from this index. Some of such companies in the FTSE 100 List are the Vodafone Group Plc, Rio Tinto Plc, RELX Plc, Prudential Plc, Pearson Plc, Mondi Plc, International Consolidated Airlines Group SA, InterContinental Hotels Group Plc, Glencore Plc, GlaxoSmithKline plc, Fresnillo Plc, Ferguson plc, Compass Group Plc, Coca-Cola HBC AG, Centrica Plc, BT Group Plc, JD Sports Fashion Plc, British American Tobacco Plc, BHP Group Plc, AstraZeneca Plc and Anglo American Plc.
  1. Largest retailing companies in the United Kingdom – The FTSE 100 is also home to the largest of the retailing and supermarket-chain companies of the United Kingdom. These companies earn a large portion of their revenues in cash and are also least affected by economic down turns. Investing in these companies ensures that investments are well protected no matter if in the short run these companies provide any returns in terms of dividends or not. Such companies on the FTSE 100 list are Burberry Group Plc, JD Sports Fashion Plc, Kingfisher Plc, Next Plc, Unilever Plc and Associated British Foods Plc.
  1. Stocks of Oil Companies – Though only two in number, oil companies on the FTSE 100 index bring significant value to the Index. At any point of time they are amongst the top five companies on the index in terms of market capitalization. These companies provide the much-needed automotive fuel to the British Economy and hence are least impacted by economic events taking place in the United Kingdom, in fact the fortunes of these companies are more impacted by international crude oil prices than anything else. The companies belonging to this category on the index are BP Plc and Royal Dutch Shell Plc.
  1. Housing Stocks – Housing and construction companies in the United Kingdom seem to buck the trend when it comes to performance in the face of adverse economic conditions. Major housing companies in the United Kingdom have given out decent financial performances during the current depressed economic conditions prevailing in the United Kingdom, better than that of companies belonging to other sectors. The trend is, however, more prevalent outside of London in its suburbs and other tier two cities. Top companies on the FTSE 100 list belonging to this category are Barratt Developments Plc, The Berkeley Group Holdings Plc, Persimmon plc, Reckitt Benckiser Group Plc and Taylor Wimpey Plc.

However, these are not the only stock ideas that one may be interested to pursue regarding the FTSE 100 Index. There have been a number of companies and stocks that have performed exceedingly well even during challenging economic periods and for a variety of reasons. These can be excellent investment ideas too. Investors should be more guided by their ultimate objectives rather than individual stock ideas while making an investment decision.

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