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Buying shares inside an ISA is a shrewd investment strategy, in my book. Within this type of account, all profits and income generated are completely tax-free.
Here, I will highlight two high-quality FTSE 100 I see the stocks as great investments for an ISA in 2023. Both stocks have generated impressive returns for long-term investors and I think they are attractively priced today.
An exceptional company
first is Diageo (LSE: DGE). is the owner of johnnie walker, Tanqueray, smirnoffand a lot of other well-known brands of alcohol.
Diageo is an exceptional company, and from a long-term investment perspective, there’s a lot to like about it.
For starters, it has strong competitive advantages, thanks to its brands. These brands lead to repeat consumer purchases which, in turn, lead to consistent sales. They also give the company pricing power, which is useful in an inflationary environment.
Second, it has growth potential. Diageo generates a large part of its sales in the world’s emerging markets. As revenues in these markets increase in the coming years and decades, demand for the types of premium spirits Diageo produces should increase.
Third, it generates high returns on capital, giving you the power to reinvest for future growth.
Finally, it has an excellent dividend track record, having increased its payment every year for more than 20 years. The yield is currently around 2.2%.
On the downside, the company is about to lose CEO Ivan Menezes, who has held the top job for about a decade. Menezes has done an outstanding job at the head of the company, so his presence can be missed.
Overall though, I see this stock as a great investment.
The forward-looking P/E ratio here is currently around 20, which I think is very reasonable for a company of the quality of Diageo.
A world class business
The other FTSE 100 stock that I want to highlight as a good investment for an ISA is London Stock Exchange Group (LSE:LSEG). It is a leading company in infrastructure for financial markets and data.
This is another company with powerful competitive advantages. Its monopoly position in terms of the operating side of the UK financial markets is one. His ownership of FTSE Russell (the FTSE and Russell indices are some of the best-known financial market indices in the world) is another. These competitive advantages mean that competitors cannot easily steal market share.
It is also a company with a lot of potential. One source of growth here could be the recently announced partnership with the tech giant Microsoft. Going forward, the two companies will work together to develop next-generation artificial intelligence (AI) and cloud-based data and analytics solutions. The London Stock Exchange believes the partnership will increase its revenue growth.”significantly” over time as new products come online.
One risk to consider here is that a consortium of investors that includes black stone and Thomson Reuters (which sold data provider Refinitiv to the group in 2021) is selling shares in the London Stock Exchange right now to reduce the size of its stake in the company. This could keep stock price gains muted for the near term.
Once they finish selling though, I think the share price could take off. The forward-looking P/E ratio is just 23 right now, which is relatively low for a high-quality fintech company.
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