Some investors avoid the FTSE 100 as there are only a limited number of technology stocks in the index. Rather than avoiding the index entirely, I’d still own other FTSE 100 companies, but I’d devote the majority of my portfolio to these technology businesses.
There are two, in particular, I’d focus my efforts on.
FTSE 100 technology stock
The first is property portal Rightmove (LSE: RMV). This enterprise owns one of the most visited websites in the country, rightmove.com. This gives it a tremendous competitive advantage and edge over peers when competing for business. Estate agents almost have to list their properties with the site. That means it can charge what it wants, to a certain extent.
And as the property market has boomed over the past year, Rightmove’s profits have surged. For the six months ended 30 June, basic earnings per share rose 7%. As profits have increased, the company has started returning more cash to investors. It returned £128m in the first half of 2021, up from £54m in 2019.
As the FTSE 100 company continues to dominate its position at the top of the property market (it has a market share of 90%), I think this trend of rising earnings and cash returns will continue.
That said, the business can’t take its advantage for granted. Peers are constantly fighting for market share, spending millions in the process. Rightmove also needs to keep spending on marketing or the group could start to fall behind. The company could also suffer if the property market experiences a slowdown, which would reduce the demand for its services.
Despite these risks, I would buy the tech champion for my portfolio today.
Growth potential
As well as Rightmove, I’d also buy grocery retailer Ocado (LSE: OCDO) for my portfolio of FTSE 100 stocks.
I think it’s difficult to overestimate how much of a positive impact the pandemic has had on this enterprise. Before the pandemic, Ocado was struggling to build market share in the fiercely competitive UK retail market. However, as the country locked down in the first half of last year, it couldn’t meet demand.
And it’s stepped up to the challenge. Even though it temporarily stopped taking on new customers last year, the company has responded by expanding operations to meet growing customer demand.
What’s more, new customers have stayed with the business. Retail earnings before interest, tax, depreciation and amortisation increased more than 100% in the first half of 2021, compared to the same period last year. This growth helped the company cut its overall loss before tax for the period by 40%.
Clearly, the company has something customers want. Therefore, I feel that as long as management continues to do what it’s doing, the firm should continue to grow.
Still, as noted above, the UK retail sector is highly competitive, and this competition could weigh on Ocado’s growth. Also, costs are rising, which could hurt the organisation’s profit trajectory. Then investors need to consider the legal threats to Ocado as peers are suing the company regarding its robotic technology.
Even after taking these risks and challenges into account, I’d buy the FTSE 100 stock for my portfolio today.
