With oil & gas prices rising, are there only 2 FTSE 100 stocks to consider buying now?

The FTSE 100‘s being battered at the moment. Just before the war in the Middle East started, the index set a new record high and there was talk of it breaking through the 11,000 barrier for the first time.

Today (23 March), it hovers around 10,100. Okay, an 8% drop’s disappointing. However, things could have been a lot worse. And by keeping a calm head, I reckon it’s possible to take advantage.

Twin peaks

With oil & gas prices soaring, some might think that it’s only worth buying shares in BP and Shell — the index’s two energy giants — at the moment. Indeed, both have reached five-year highs in recent days.

But they also have extensive assets in the Middle East. If these are attacked, earnings could suffer. Indeed, Shell’s Pearl GTL facility in Qatar has already been damaged.

Hopefully, the war will end soon. When it does, it’s likely that energy prices will start to fall, especially if the Strait of Hormuz becomes accessible again. In these circumstances, the duo’s share prices are likely to drop significantly.

Therefore, I think there are better value opportunities to consider elsewhere.

However, even if the conflict is resolved shortly, inflation and interest rates are likely to remain higher for longer than previously thought. This could have adverse implications for the earnings of many FTSE 100 members including housebuilders, airlines, and hotels.

Over the long term, I’m confident their profits will grow once more. After all, most of the companies on the index have strong balance sheets. But we could be in for a period of economic instability.

A provider of essential services

In light of this uncertainty, I reckon National Grid (LSE:NG.) is worth a closer look. Although the group isn’t immune from rising energy prices – its margin could be squeezed in its UK and US electricity and gas supply businesses — the bulk of its income comes from owning energy infrastructure assets. And whatever the prevailing state of the economy, these will always be needed.

The downside of having a monopoly over these critical pipes, powerlines, and cables is that the group’s regulated. This means it’s restricted in how much it charges customers. However, it also gives it reasonable certainty over what its income’s likely to be assuming, of course, that it continues to meet its obligation to keep the lights on.

With good earnings visibility and strong cash flows, the group’s able to pay an above-average dividend. The stock’s currently yielding 3.7%. And from 2025 to 2029, National Grid plans to invest £60bn. If it can maintain the 9% return on equity achieved during its 2025 financial year, its earnings could grow significantly by the end of the decade. In turn, this should support a rising dividend.

Final thoughts

With so much market volatility around, it’s difficult picking stocks. However, successful investing is about holding shares for the long term. Adopting this mindset makes timing the market becomes less important.

National Grid shares may fall from their current level if trouble in the Gulf continues but I’m confident that in a few years time, they’ll be higher than they are now. In addition, shareholders will have picked up some healthy dividends along the way. That’s why I reckon the stock’s one of many UK shares that could be considered now.  

The post With oil & gas prices rising, are there only 2 FTSE 100 stocks to consider buying now? appeared first on The Motley Fool UK.

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James Beard has positions in Bp P.l.c. The Motley Fool UK has recommended National Grid Plc. 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.

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