July is statistically a relatively strong month for FTSE 100 shares. That said, I don’t usually pay much attention to seasonal effects on the stock market. Instead, I prefer to focus on longer-term trends.
Several Footsie stocks offer solid long-term prospects right now, in my opinion. But there are just two that are at the top of my list.
Food for thought
If I had spare funds in my Stocks and Shares ISA, I’d buy Compass Group (LSE:CPG). This global food services business offers dining solutions to organisations around the world.
Think about all the canteens we come across in office buildings and hospitals. Many of these are serviced by Compass.
So what makes this kind of boring-sounding company so appealing? Well, first it benefits from several long-term structural trends. For instance, as populations rise and more people start working in cities around the world, the demand for office-based food should grow.
Encouraging outlook
Next, the pandemic was a challenging time for Compass when workers retreated to their homes. But today, it’s in a much better place.
Pre-tax profits gained 31% in the six months to March. After a challenging business environment during the pandemic, more organisations are outsourcing their catering.
Higher costs and changing health-related demands may be making it more difficult and expensive to operate catering in-house.
Bear in mind that food inflation is still high in the UK and Europe. These regions represent 23% of its sales, so are significant. As higher food costs can put pressure on profits, it’s a point to note.
That said, the company recently upped its guidance for profit growth. And to me, the outlook is encouraging.
A FTSE 100 tech stock
When I can add fresh money to my ISA, I also want to buy Sage (LSE:SGE). It may not be a household name but it provides cloud business management services to millions of small and mid-sized businesses.
I like companies that operate in several countries. It reduces risk when one country is facing greater challenges. For instance, 44% of Sage’s sales are in North America, and 29% are in the UK. This mix bodes well for Sage versus purely UK-focused businesses.
Sage is what I’d describe as a high-quality share. By this I mean it’s profitable, offers strong return on capital, and a growing dividend. It also has strong cash flow and a robust balance sheet.
Some companies sell a one-off product or service. But that relies on having to constantly find more customers. In contrast to this, Sage benefits from 96% recurring sales. That’s a lot of repeat business and music to my ears.
Quality costs more
Bear in mind that it’s not the cheapest FTSE 100 stock around. With a price-to-earnings ratio of 27, the share price could disappointment in the short term if earnings growth fails to materialise.
With software companies, competition can change quickly too. Superior software can appear and always remain a factor to look out for.
That said, cloud computing is a high-growth area, and Sage’s commitment to using innovative AI-powered services should keep it competitive.
