As an investor, I prefer to spend money on corporations with confirmed enterprise fashions. So it could appear that the FTSE 100 index makes a pure looking floor, because of its plethora of sizeable, well-established enterprises.

Even within the FTSE 100, although, there are some shares that do very properly and others that carry out terribly.

Here’s a handful of issues I take note of when scouring the FTSE 100 for shares to purchase.

1. Deal with the long run

Firms are elevated to the main index because of the dimension of their market capitalisation. In a roundabout way, that may make the index reasonably backward-facing. Mature industries in decline can nonetheless be represented, whereas fast-growing sectors of the financial system may not be.

For example, think about tobacco.

Would possibly British American Tobacco and rival Imperial Manufacturers be remnants of a bygone period? Each noticed income declines final 12 months regardless of having sturdy pricing energy.

2. Sustainability of the enterprise mannequin

Nationwide Grid is a well-liked decide with revenue traders, because of its beefy dividend and coverage of aiming to develop the dividend in keeping with inflation.

But I don’t personal the share. Why? I believe the enterprise mannequin is much less profitable than it could appear. Sustaining it might require extra money.

Sure, energy distribution networks are seemingly right here for the long run. However sustaining or altering them may be very capital intensive. That helps clarify why Nationwide Grid diluted shareholders this 12 months to lift money.

3. Purchase the enterprise, not the hearsay

As nationally recognised corporations, FTSE 100 corporations usually pop up in takeover rumours. Shopping for a enterprise that then will get taken over can imply a fast revenue.

However I see that as hypothesis, not investing. I spend money on a share solely as a result of I like its enterprise prospects and present valuation.

4. At all times take note of valuation

When shopping for any share, I believe valuation issues – and that applies to the FSTE 100 too.

Think about Spirax (LSE: SPX), the engineering firm that has an unbroken document of annual dividend per share will increase stretching again over half a century.

The enterprise efficiency has not been stellar these days. Whereas revenues hit an all-time excessive final 12 months, fundamental earnings per share fell 18%. With ongoing demand weak point in China, I see additional dangers for the steam and industrial fluid system specialist.

However I nonetheless see it as a terrific firm and would fortunately personal the shares. It has a large addressable market, proprietary know-how, a big put in buyer base, and robust fame.

However is that this FTSE 100 share, down 36% to this point this 12 months, price over 20 occasions earnings?

I don’t suppose so, which is why I’m not shopping for.

5. Think about what units the agency aside

As with every share, I search for a aggressive benefit that I believe helps set a agency other than rivals.

FTSE 100 corporations like Haleon and Unilever have portfolios of distinctive manufacturers that give them pricing energy.

Billionaire investor Warren Buffett, who tried to purchase all of Unilever in 2017, at all times seems for a enterprise to have a “moat” that helps it fend off rivals.