I’ve kicked off 2023 by looking at which shares I’d like to add to my Stocks and Shares ISA. Today, I’m focused on large-cap FTSE 100 shares.
I’ve always admired fashion retailer Next (LSE:NXT). I reckon it’s the best managed clothing retailer in the UK. I’ve been expecting most retailers to report weak sales, given the cost-of-living crisis.
In contrast, Next lifted its profit outlook on Thursday and reported strong sales over Christmas. It looks like cold weather prompted many to buy coats and other winter items.
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Quality business
Higher costs last year put pressure on many retailers’ profit margins. So it was good to see Next talking of lower shipping and raw material costs.
That said, it remained cautious in its outlook for the coming year. That’s no surprise as rising mortgage costs and other inflationary pressures could put further dent household finances.
Overall though, Next is a high-quality business. Its return on capital employed and profit margins are in double digits. It also offers a 3% dividend yield.
I’d consider it a good long-term holding and I’d certainly buy it if I had spare funds.
FTSE 100 bargain
The next FTSE 100 share that I’d buy is discount retailer B&M European Value Retail (LSE:BME). Like Next, it also reported strong Christmas trading yesterday. In the 13 weeks leading up to Christmas, sales rose by 12% compared to the prior year.
It reported “very good performance across all B&M UK categories, both in grocery and general merchandise”. That sounds reassuring to me.
I reckon this stock will prove resilient this year, especially if households tighten their belts.
Another feature I like about this business is that it’s still growing. With a price-to-earnings ratio of 12, it’s also reasonably priced.
To top it off, it has a dividend yield of 4%. That’s around the average for the FTSE 100. But I’d note that this could rise to a juicy 8% yield when factoring in special dividends.
There’s always the risk of competition taking a chunk out of its business though. Many UK retailers could offer similar products at similar prices.
But overall, it looks good to me right now. If I had some extra cash, I’d buy these shares today.
The best medicine
Another defensive FTSE 100 share that I’d buy right now is pharmaceutical giant Astrazeneca (LSE:AZN). It earned £3bn from Covid vaccine sales in 2021. But that’s not why I’m keen on this stock.
Cancer treatment is its main area of focus and is likely to fuel earnings growth over the coming years.
Astrazeneca’s focus on research and development (R&D) is paying dividends. It has been allocating an industry-leading 23% of its sales to its R&D budget.
That’s resulting in ample regulatory approvals and a strong pipeline of new drugs.
With a market capitalisation of over £180bn, it’s now the most valuable company in the FTSE 100. After a strong run up in its share price, is the upside limited?
It’s certainly a risk. It’s also not the cheapest stock among the Footsie giants. That said, I’m a long-term investor. And this business has years of potential growth ahead, in my opinion. As soon as I have some spare cash in my ISA, buying this share will be a ‘no-brainer’ decision for me.
