Stock market rally: I’d buy these FTSE 100 shares in an ISA to retire in comfort

These FTSE 100 shares could offer long-term capital appreciation potential in a stock market rally after a challenging period.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Despite the recent stock market rally, many FTSE 100 shares continue to trade at relatively low levels. While they may be experiencing tough operating conditions that last for part of 2021, their long-term capital appreciation potential seems to be high.

Through buying such stocks, it’s possible to benefit from a likely stock market rise in the coming years. After all, the FTSE 100 has always recovered from its declines to post new record highs.

With that in mind, here are three UK shares that could offer long-term capital growth after disappointing performances in recent months.

Growth at a reasonable price

Burberry has underperformed many FTSE 100 shares over the last year. The luxury fashion house is down by over 20%. The retailer was hit hard by store closures while reduced air travel decimated its strong reliance on the patronage of high-spending tourists. This could continue through much of 2021.

However, the company’s performance in 2022 is expected to improve significantly. For example, it’s expected to deliver a 50% rise in net profit, as coronavirus restrictions are eased. Since it trades on a price-to-earnings growth (PEG) ratio of 0.5, this doesn’t seem to have been factored into its share price.

With a solid brand and large customer following, as well as a move into sustainability and digital avenues, Burberry’s share price prospects could be far more positive than investor sentiment indicates.

A recovery opportunity among FTSE 100 shares

Even defensive FTSE 100 shares such as Smith & Nephew have suffered in the current economic crisis. The company has experienced disruption within its operations. And that has negatively impacted on its financial performance over the last year.

Looking ahead, the company is forecast to post a 50% rise in net profit this year. Since it trades on a PEG ratio of 0.5, it seems to offer good value for money. With an ageing global population, the long-term growth trends within the company’s key markets could continue as coronavirus challenges reduce. This may mean now is an opportune moment to buy shares in Smith & Nephew while they offer a wide margin of safety.

Solid financial prospects during an uncertain period

FTSE 100 shares with solid financial positions could be especially attractive at the present time. They may be able to overcome challenging operating conditions within their industries. They may also be able increase their market share to produce improving profitability in the long run.

One example of such a business is housebuilder Berkeley. Its £1bn+ net cash position shows it has the financial means to not only survive the present economic crisis. But the group should also be able capitalise through acquisitions of land and take long-term investment decisions.

The company’s price-to-earnings (P/E) ratio of 14 indicates it offers good value for money. It could be a major beneficiary of a return to economic growth in the UK once coronavirus restrictions begin to ease.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Berkeley Group Holdings. The Motley Fool UK has recommended Burberry. 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.

More on Investing Articles

Closeup of "interest rates" text in a newspaper
Investing Articles

Here’s why 2025 could give investors a second chance at a once-in-a-decade passive income opportunity

Could inflation hold up interest rates in 2025 and give income investors a second opportunity to buy Unilever shares with…

Read more »

Investing Articles

As analysts cut price targets for Lloyds shares, should I be greedy when others are fearful?

As Citigroup and Goldman Sachs cut their price targets for Lloyds shares, Stephen Wright thinks the bank’s biggest long-term advantage…

Read more »

Investing Articles

Is passive income possible from just £5 a day? Here’s one way to try

We don't need to be rich to invest for passive income. Using the miracle of compounding, we can aim to…

Read more »

Middle-aged black male working at home desk
Investing Articles

If an investor put £20k into the FTSE All-Share a decade ago, here’s what they’d have today!

On average, the FTSE All-Share has delivered a mid-single-digit annual return since 2014. What does the future hold for this…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

One FTSE 100 stock I plan to buy hand over fist in 2025

With strong buy ratings and impressive growth, this FTSE 100 could soar in 2025. Here’s why Mark Hartley plans to…

Read more »

Investing For Beginners

If a savvy investor puts £700 a month into an ISA, here’s what they could have by 2030

With regular ISA contributions and a sound investment strategy, one can potentially build up a lot of money over the…

Read more »

artificial intelligence investing algorithms
Investing Articles

2 top FTSE investment trusts to consider for the artificial intelligence (AI) revolution

Thinking about getting more portfolio exposure to AI in 2025? Here's a pair of high-quality FTSE investment trusts to consider.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Do I need to know how Palantir’s tech works to consider buying the shares?

Warren Buffett doesn’t know how an iPhone works. So why should investors need to understand how the AI behind Palantir…

Read more »