Forget buy-to-let! I’m investing in FTSE 100 shares instead

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop

If I had to choose between investing in FTSE 100 shares or buying a rental property, I’d choose the former in a heartbeat. Buy-to-let has been and continues to be a highly popular passive income method. But the problem is it comes with a lot of caveats.

Property owners must first raise enough capital to afford a mortgage and then cover the cost of maintaining the property. Beyond these core expenses, there’s also the headache of dealing with tenants and estate agents. And if the property is sold, HRMC will be knocking at the door for capital gains tax.

Thankfully, this hassle can be avoided entirely when putting money in the stock market. And even taxes can be bypassed when using a Stocks and Shares ISA.

So, with that in mind, what are some of the best stocks to buy now?

Shares of this FTSE 100 retailer are heating up

A stock that hasn’t received much love so far this year is B&M European Value Retail (LSE:BME). Investors of this discount retailer have suffered an unpleasant 26% decline over the last 12 months.

During the 2020 lockdowns, management secured an ‘essential’ status. As a result, its stores remained open while most of its competitors had to close their doors. Pairing this with a surge in high-priced, high-margin home improvement product sales in 2021 sent the revenue stream and earnings to a new record of £4.8bn and £428.1m, respectively.

Sadly, these tailwinds haven’t lasted. And in its 2022 fiscal year ending in March, the new-found growth started to reverse, triggering the stock sell-off.

Yet despite what the surface level performance suggests, shares of this FTSE 100 business may be a hidden gem. In its 2022 full-year results, total revenue fell by 2.7%, with pre-tax profits remaining flat. However, its expansion into France seems to be paying off because sales were actually up by 14%.

Skip ahead to its 2023 first-quarter results and a similar pattern is emerging. Total revenue has still dropped but at a slower pace of 2.4%. Yet once again, France is putting on an impressive show with 34% growth!

The risks and reward

What does this all mean? Management seems to be offsetting the loss of its tailwinds by opening new stores. This isn’t currently enough to generate new growth, but it is mitigating the damage in the UK. Meanwhile, in France, B&M is making waves. And while international sales only make up around 7.8% of the revenue stream, that might soon change if current growth rates continue.

In other words, the recent sell-off may be a buying opportunity to secure promising long-term returns. But that doesn’t make it risk-free.

Expansion of the store count comes with higher costs, placing more pressure on margins, which are already tight. Total revenue growth might return. But restricted cash flows may compromise internal investments as well as shareholder dividends.

Furthermore, while France may be a terrific growth avenue, it comes with the risk of fluctuating foreign exchange rates that can adversely affect the bottom line.

Nevertheless, management seems to be making the right moves to get growth back on track. And at a P/E ratio of 10, these FTSE 100 shares look too cheap to pass up for my income portfolio.

The post Forget buy-to-let! I’m investing in FTSE 100 shares instead appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value. 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.