In a stellar start to 2021, the FTSE 100 index rallied 4% in the first two days of trading after the Christmas break. Building on a strong early performance, the UK’s blue-chip index finished the week on a respectable 6,873 points.
While the coming year undoubtedly brings several challenges to navigate, the UK’s macroeconomic outlook appears to have vastly improved. After all, with a swift rollout of the Covid-19 vaccine, businesses will be eager to return to familiar trading conditions.
With that in mind, it’s feasible that we could witness a strong performance from UK equities over the coming year. As such, here’s a look at my selection of the best FTSE 100 shares I’d buy for 2021.
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UK shares with a positive outlook for the year ahead
When it comes to hunting for the best companies to invest in this year, I’m keeping my eye on a few key indicators. For example, I’m seeking firms that have fared well over the previous year. That’s in spite of the unfavourable trading conditions. Considering this, companies such as Unilever, Ocado and Flutter Entertainment immediately spring to mind.
In my view, the impressive performances of these companies demonstrates an element of business resilience, which will continue to be vital for businesses as they navigate the challenges of the coming year.
As another example, take DS Smith, which is a British multinational packaging firm. Despite its classification as a cyclical business, the company weathered the crisis surprisingly well.
As the analysts at Hargreaves Lansdown pointed out, this was primarily thanks to DS Smith’s exposure to two key sectors: e-commerce and consumer goods. This enabled the company to offset the impact of lower revenues in other areas of the business.
What’s more, I reckon the firm’s extensive exposure to these two groups will continue to pay dividends in 2021. After all, the meteoric rise of e-commerce over the previous few years shows no sign of slowing down. Bearing this in mind, demand for DS Smith’s packaging could continue to increase.
Cheap FTSE 100 shares that could be due a bounce-back
It comes as no surprise that certain companies have been hit particularly hard as a result of the pandemic. While the majority will continue to struggle financially over the coming year, I think 2021 looks set to be a year of strong recovery for several battered UK stocks.
For example, think of Rolls-Royce and International Consolidated Airlines Group. Both rely on a healthy aviation industry, which has been lacking over the last year. As a result, both companies’ share prices are down by 54% and 41% respectively since the beginning of 2020.
However, the vastly improving outlook in relation to Covid-19 means that a profitable 2021 isn’t exactly out of reach for either firm. Furthermore, thanks to both taking the necessary steps to shore up their finances, Rolls-Royce and IAG have strengthened their financial outlooks.
All in all, for those who remain bullish about the recovery and growth prospects for the UK economy, investing in British shares that are trading far below their average historic valuations could be a lucrative long-term play.
