Whether you’re a seasoned investor or just starting out, the Stocks and Shares ISA is a fantastic wealth-building vehicle. Any returns in this account are tax-free, something that acts as an accelerant for the compounding process.
With this in mind, here are two FTSE 100 shares that I think are worth considering for an ISA in September.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Defence giant
BAE Systems‘ (LSE:BA.) stock has come right off the boil. In the past three weeks, it’s dipped over 13%, despite the Middle East conflict reigniting and the terrible Ukraine war continuing.
What’s going on? One thing hitting the stock is a spike in gilt yields, which recently put long-term UK government borrowing costs at a 28-year high. This has raised doubts about the pace of extra defence spending.
With other NATO countries in the same boat, to varying degrees, this has led to a sell-off in defence stocks.
Thing is, I don’t think this derails the long-term investment case for BAE stock. Due to US pressure, NATO allies have already committed to spending at least 3.5% of GDP on core defence by 2035. Some like Poland are going way beyond that.
Meanwhile, the continuing Iran war is sure to see oil-rich Gulf states bolster their own armed forces. BAE has a multi-decade track record of partnership in the Gulf, while Australia’s increasing its own defence budget.
Stepping back, I’m confident the UK government will find the necessary funds to prioritise defence, even if it has to raise taxes. That wouldn’t be great for the economy, but BAE’s much less dependant on economic growth than a traditional company.
In July, the UK defence giant reported a record £84bn order backlog. First-half sales were up 9%, operating profit by 11%, and earnings per share by 13%. The business is humming.
After the dip, the stock’s trading at 21 times forward earnings, down from 28 times in March, and it’s offering a forecast 2.2% dividend yield.
For investors comfortable owning defence shares, I think the dip’s worth taking seriously.
Blue-chip investment trust
Changing gears now, I reckon 3i Group (LSE:III) looks attractive to consider from a long-term perspective. Shares of the £28bn investment trust, which invests in private companies and infrastructure, are down 37% inside a year.
The culprit is Action, Europe’s fastest-growing non-food discounter. Since 3i first invested in 2011, Action has gone from 250 stores to more than 3,400 across 15 countries. It’s been a wildly successful investment.
However, Action has suffered some growing pains in countries like France. And given that it now makes up over 70% of 3i’s total investment portfolio, there’s clearly a concentration risk here.
Yet it’s important to remember that 3i’s management team is vastly experienced, with CEO Simon Borrows saying Action displays “some of the best store economics we have seen in a retail concept.”
In the six months to 28 June, the Dutch retailer grew EBITDA by 13% to €1.1bn. And it paid 3i a £254m dividend in the first quarter, alongside fellow portfolio holding 3i Infrastructure, which paid an £18m dividend.
Speaking of income, the FTSE 100 stock’s offering a 3.1% dividend yield, and trading at an 11% discount to net asset value.
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Ben McPoland owns shares in 3i Group and BAE Systems.
