Can the final month of the year offer my portfolio some blue-chip bargains I can hold into 2023 and beyond? I hope so and have been scouring the FTSE 100 for possible candidates. Here are two that I would buy for my portfolio now, if I had spare cash to invest.
Howden Joinery
There are a couple of reasons to be wary of the business outlook at Howden Joinery (LSE: HWDN) right now. Cost inflation could hurt profit margins and sales volumes might also suffer if a weakening housing market leads to lower demand for building products.
However, I do not think either of those scenarios is inevitable. A shortfall in housing stock means that builders are likely to be kept busy even if property prices fall. As well as new buildings, joinery products are used in renovations. Howden’s brand loyalty and large trade customer base should help it pass on increased costs in the form of higher selling prices.
Strong business model
Those trade relationships are one of the reasons I like the business model at Howden Joinery. Professional customers get through high volumes of wood, which can translate to sizeable sales. A national network of depots helps cement Howden’s place in many customers’ mind as the convenient local supplier.
Howden has spent a long time refining its business model and building a customer base. I think it shows in the FTSE 100 company’s performance, with post-tax profits of £315m last year on revenue of £2.1bn. That is a net profit margin of 15%, which I think is impressive.
After falling 33% this year, Howden Joinery shares now trade on a price-to-earnings ratio of 10.
I see that as offering me good value for the long term and would be happy to tuck these shares away in my portfolio.
Legal & General
The second FTSE 100 share I’d add to my portfolio with spare funds is Legal & General (LSE: LGEN). This is a well-known financial services company that last year recorded over £2bn in profits after tax. Yet, right now, its market capitalisation is around £15bn. The shares are down 13% in the past 12 months.
That looks like a potential bargain for my portfolio – and not just because the share price has fallen. Legal & General has the sort of business I look for when investing. Demand in the financial services sector is likely to be robust in coming years and decades. A strong brand helps L&G attract customers and it benefits from economies of scale when servicing them.
I do see risks here. For example, with spare cash becoming scarcer, some customers may cut their investments. That could lead to lower sales and profits at Legal & General. But as a long-term investor, I like the combination of a strong business with attractive income prospects. The current dividend yield on this share is 7.3%.
Although dividends are never guaranteed, the firm has set out a plan to keep increasing its payout annually over the next couple of years.
