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.
