I would buy these 2 FTSE 100 stocks for my New Year’s portfolio

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At the end of each year, I like to review my current portfolio and think of ways to improve it. This evaluation process was probably one of the only benefits of 2022 being such a difficult year, as it gave me a lot of areas to improve.

My value-oriented investments suffered during the year as already low stock prices fell further. Similarly, my small selection of growth stocks saw a significant reduction in their price-to-earnings (P/E) ratios. The only promising group was the dividend portion, which provided a steady source of passive income.

I am keen to diversify further as we approach 2023 and increase my dividend allocation. One of the ways I plan to do this is to seek out quality companies that trade at reasonable prices. This approach focuses on strong fundamentals first and then narrows potential options based on price.

Unilever

The first stock on my list is Unilever (LSE: ULVR), one of the world’s largest consumer goods companies. It offers a wide range of personal care, food and home products. The share price has remained fairly stable over the years and is up just over 3% in 2022. However, it is still down 13.2% from pre-pandemic levels.

The stock currently offers a 3.6% dividend but is expected to rise to 3.7% next year. This return has paid consistently over the past 30 years and can be comfortably covered by earnings per share (EPS) with a dividend coverage ratio of 1.5.

The underlying fundamentals are strong, with healthy profit margins, reasonably low debt levels and strong free cash generation. Revenue is also expected to grow by 13.3% next year, well above its three-year average of just 0.9%.

Despite the downward trend in the share price since before the pandemic, it still has a P/E ratio of 17.7. It’s above the FTSE100 Average P/E of around 14, so could be considered a bit pricey.

Nonetheless, I think the strong underlying fundamentals and track record of strong performance are worth the premium. Therefore, I will add Unilever to my new 2023 investment portfolio shortly.

Hargreaves Lansdown

The second company on my list is Hargreaves Lansdown (LSE: HL). It operates a range of investor services in the UK, such as managed funds and support services. Unlike Unilever, this stock has suffered considerably in recent years. It has fallen almost 40% in 2022 and now has a P/E ratio of around 16.

Despite this poor stock market performance, the fundamentals are very solid. The return on invested capital (ROCE) is high at almost 45%, combined with a very low level of debt. In addition, revenue and profit are expected to grow significantly next year, well above their three-year average.

Still, I think it’s important to remember some of the reasons for the recent poor performance of stocks. The company has struggled with the negative publicity surrounding the Woodford fund’s collapse and its alleged role in the debacle. Additionally, analysts wonder whether a drop in post-pandemic investment activity could reduce the company’s earnings potential.

Nonetheless, I think it’s a great example of a high quality company with strong profit margins that still trades at a reasonable price. So I want to add to my position when I have the money.

The post that I would buy these 2 FTSE 100 shares for my New Year’s portfolio appeared first on The Motley Fool UK.

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Gabriel McKeown holds positions at Hargreaves Lansdown. The Motley Fool UK recommended Hargreaves Lansdown and Unilever. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.

Motley Fool United Kingdom 2022

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