Numbers for the UK economy released earlier today continue to look good. For the full-year 2021, the economy saw 7.5% growth from last year as recovery from the pandemic ensued. In the final quarter alone, the gross domestic product (GDP), which is the headline measure for economic activity, rose by 1% from the quarter before. This is despite disruption caused by the Omicron variant. In my opinion, this bodes particularly well for some FTSE 100 stocks.
Not all FTSE 100 stocks would gain equally
Why only some? Well, there is no denying that a buoyant economy is likely to be good for stock markets in general. This in turn, could lift all stocks. However, the FTSE 100 index is made up of big multi-nationals. Some of these do not have significant interests in the UK economy. Consider the industrial equipment rental provider Ashtead, for instance, which garners no less than 80% of its revenues from the US market. Or consider international big mining stocks, many of which are part of the FTSE 100 index. These include the likes of Switzerland-headquartered Glencore and Russian Evraz, which also get much of their revenues from around the world. They might do well, but not because of the UK economy in particular.
Tesco could continue to perform
However, there are some FTSE 100 stocks that are focused on the UK markets. One fine example is Tesco, which has the biggest share of the country’s grocery market at 28%. Much of the company’s revenues come from the UK and Ireland. And it has also performed very well in the past year. It also ticks other boxes. Its share price has performed quite well in the past year, it is still reasonably priced going by its price-to-earnings (P/E) ratio of sub-20 times, and it even pays a dividend.
Its present yield is 3.1%, though, which is below both the FTSE 100 average of 3.4% and the inflation rate at 5%. It might not see the same growth in grocery purchases post-pandemic as well. But broadly, I reckon I would come out ahead for buying Tesco’s shares over time. It is on my investing buy-list.
Lloyds Bank is on a roll
I also like Lloyds Bank, which, unlike most other banking stocks is driven by the UK markets. The stock has pretty much sustained 50p+ levels through 2022 so far, and its prospects look good too. Rising inflation might be a real downer for many other FTSE 100 stocks, but for Lloyds Bank it is something of a blessing. Interest rates are expected to rise fast and that could improve banks’ margins. I also anticipate that its sagging dividend yield will improve this year, as the economy expands further. It is currently at 2.3%.
Of course if inflation runs too high or yet another variant of coronavirus throws a spanner in the works, the economy could be in doldrums again. And the stock is very likely to dip back to sub-50p levels too. But for now, I think it is a good bet. It is also on my buy-list for 2022.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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