Two FTSE 100 stocks I'd buy for 2018

Primark Store
Primark Store

The FTSE 100 has enjoyed a terrific bull run since the financial crisis and has been making new all-time highs. I don't believe timing the market by jumping in and out is something investors can be successful at consistently. Rather, I see regularly buying stocks through market ups and down as a sound strategy for building wealth over an investing lifetime.

A diversified portfolio, including both defensive and cyclical businesses, bought when they're trading at good or fair value, should deliver excellent long-term results. With this in mind, I've got two Footsie stocks for 2018 and beyond, which I consider to be great businesses trading at fair prices.

Huge growth opportunity

Associated British Foods(LSE: ABF) isn't all about value fashion phenomenon Primark -- but a good bit of it is. Primark contributed £735m operating profit in the last financial year, representing over 50% of the group's total.

Nevertheless, ABF is a conglomerate with various businesses and wide geographical diversification. The group has some defensive qualities, including Primark's value positioning and a grocery business that's home to trusted brands, such as Twinings Ovaltine and Ryvita. Its sugar business is more volatile but delivers nice bonuses in bumper years: annual profits have ranged from £34m to £510m over the last decade.

ABF's shares are trading below their 2017 high of over 3,300p. At around 21 times forecast earnings for the year to September 2018, the multiple is still relatively high and I wouldn't consider it particularly attractive, if it wasn't for the presence of Primark. The retailer is already exploiting what is, I believe, a huge global opportunity. The scale? As I wrote a couple of years ago, "there seems no reason why, over the next decade or two, it can't become as big as H&M, which is currently three times the size of Primark by sales and seven times the size by space." On this basis, I rate ABF a 'buy'.

History on its side

One thing you can't say about asset manager Schroders(LSE: SDR) is that it has defensive qualities. Its performance is linked to financial markets. Indeed, it can be considered a geared proxy for the FTSE 100. Provided management does a good job through periods of downside volatility, it should outperform the market over the long term.

History is on its side. Founded in 1804 and still controlled by descendants of the founding family, the firm is conservatively managed and maintains a strong balance sheet. A measure of its prudence and resilience is the fact that it was able to maintain its dividend through the financial crisis, when other companies were cutting their payouts left, right and centre.

In common with some other family-controlled businesses, Schroders has two share classes: voting and non-voting. The latter have the ticker SDRC and trade at a discount to the voting shares, although they have exactly the same economic rights. The fact that you'll pay just 11.4 times forecast 2018 earnings for the non-voting shares compared with 16 times for the voting, is unlikely to be of any real benefit, because the discount is long-established and likely to persist.

However, where you do benefit from buying the non-voting shares is with the dividend: a prospective yield of 4.4%, compared with 3.1% on the voting shares. I rate the stock a 'buy' and I'll be remembering the ticker is SDRC for the boosted yield!

5 shares to retire on

If you're in the market for top-quality FTSE 100 stocks, I can tell you that the experts at the Motley Fool have identified five terrific prospects.

Have ABF and Schroders made the cut for our experts' five shares to retire on? You can discover the answer and read their analysis of all five companies in this exclusive FREE report. The report comes with no obligation, so CLICK HERE now for your free copy.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Schroders (Non-Voting). 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.