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The FTSE 100 has endured a rough ride so far this year on worries over thumping global trade tariffs. While dangers remain, I’m expecting the UK’s blue-chip share index to remain a great destination for investors over the long term.
The Footsie‘s delivered an average annual return of 6.4% since 2015. And I expect it to keep delivering a robust return over the next 10 years. But for those seeking index-beating profits, I think the following two FTSE shares are worth a close look.
Big potential
Those looking to invest in the housebuilding sector should give The Berkeley Group (LSE:BKG) a close look, in my view. The Footsie business — which focuses on creating living spaces in London and the surrounding Home Counties — suffered during and in the aftermath of the pandemic. Demand in its regions fell as the appeal of country living took off.
But the tide’s turning, and interest in capital-based properties is marching higher.
Encouragingly, the long-term outlook for London’s property market remains as strong as ever. According to Statista, London’s population will rise by almost a million people between 2023 and 2043, to 9.8m. This will fuel a sharp rise in homes demand and an opportunity for local housebuilders.
Under its 10-year growth strategy (entitled Berkeley 2035), the builder’s looking to capitalise on this growing demand and supply imbalance. The plan includes spending £2.5bn on land purchases over the next decade and a £1.2bn investment in its build-to-rent platform.
In the near term, the housebuilder faces more uncertainty as the UK economy splutters, casting a shadow over homebuyer affordability. But I believe the robust longer-term outlook still makes it worth consideration.
What’s more, Berkeley shares carry better value than each of its FTSE 100 rivals based on predicted profits. Its forward price-to-earnings (P/E) ratio is 12.3 times, below those of Barratt Redrow (19.6), Persimmon (13.1) and Taylor Wimpey (13.8).
Another bargain?
Driven by its Primark value fashion/lifestyle unit, the next decade also looks like being a bright one for Associated British Foods (LSE:ABF).
In the near term, sales volumes could disappoint if consumer spending across its European and US markets remains subdued. It also faces the problem of higher costs, and particularly increasing labour expenses in the UK.
But ABF’s profits potential through to 2035 is huge, with rapid expansion set to continue at its retail unit. The global value retail market is set to continue growing sharply over the period, and Primark has substantial brand power to leverage this opportunity.
Indeed, the FTSE firm thinks new stores will contribute between 4% and 5% to annual sales growth a year. As well as having much scope to grow on the continent and North America, ABF’s also likely to continue expanding online following recent successes with click & collect.
With a forward P/E ratio of 11.8 times, Associated British Foods’ valuation is well below historical levels (its five-year average P/E is 23.8). I think this also makes it an attractive dip buy to think about right now.
