Which five FTSE 100 stocks would I buy, to start a new Stocks and Shares ISA today?
That’s a tough one. I just I see so many out there that I think look too cheap to me now. I really think I’m spoilt for choice these days.
In fact, I reckon I could come up with half a dozen five-stock portfolios that I’d be glad to hold for the long term. And there’d be no duplicates in them.
But today, I’ll try for just the one set. And I’ll start with a few words about my criteria.
What I look for
I don’t mind any sector, really, as long as its top companies have good defensive qualities.
By that, I mean two things. I want those that are able to get through a downturn with less risk of going to the wall. On that score, I’d rule out firms with high debt.
Rolls-Royce had to take on a lot of debt during Covid, as an example. But it pulled it off thanks to its strong prior cash position. I doubt Rolls would be here now had it had billions in net debt before the crash.
The other side is that I want safety from competitors. I want industries that new start-ups can’t get into easily. Does some new firm want to rival BT Group‘s next-generation networks? I don’t think BT needs to worry about that.
Essentials
Next, I want firms that provide essential goods or services, things we can’t do without. Food, energy, banking… we couldn’t manage without those.
Travel and leisure, luxury goods, and other such things aren’t really my cup of tea.
But as it happens, most of the industries covered by FTSE 100 companies do offer essentials in one form or another.
And that brings me to my final factor — valuation.
Valuation, valuation
I’m not after the cheapest stocks. No, I go more on billionaire investor Warren Buffett’s famous advice: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.“
I look for value mostly in terms of cash and reliable long-term dividends (though not exclusively).
So, which FTSE 100 stocks might I start with now, to satisfy all these rules? I reckon the following five come close:
| Stock | Recent price | 1-year change | 5-year change | Forecast P/E | Forecast Dividend |
| Barclays | 156p | -0.8% | -17% | 5.0 | 4.9% |
| Aviva | 388p | -1.9% | -40% | 8.0 | 7.8% |
| Taylor Wimpey | 115p | -9.4% | -33% | 13 | 8.2% |
| British American Tobacco | 2,630p | -18% | -37% | 7.3 | 8.7% |
| National Grid | 1,037p | -8.4% | +28% | 15 | 5.4% |
Risk reduction
I can’t dig into the individual risks of these, and investors need to do their own research and satisfty themselves.
But I do get one extra thing from this set. I get some diversification, which I see as essential as it lowers risk.
Oh, and if anyone is thinking British American Tobacco doesn’t sell products we can’t do without… try telling that to a smoker.
