Stock market

2 UK shares which I will hold for the long term in a Stocks and Shares ISA.

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My £20,000 stocks and shares ISA limit is sitting there waiting to be topped up and I can’t wait to get stuck in. I am preparing a hit list of the top. FTSE 100 Blue Chips I’d be happy to buy and hold in retirement and beyond.

I’m looking for top companies that have been overlooked by the market and are consequently cheap, while offering above-average yields. These two jump out at me.

The oil and gas giant B.P (LSE: BP) has been hovering at the top of my buy list for months. I would have bought it on several occasions, if I had enough cash. Sadly, I can’t afford to buy every stock I want.

FTSE 100 opportunities

I’m building my ammunition because, with oil prices down to around $80 a barrel, BP’s share price is up. While the FTSE 100 has repeatedly broken all-time highs in the past month, BP shares have fallen 4.68%. They are only 1.95% higher than last year.

It doesn’t put me off. Quite the opposite. The stock looks very cheap, trading at 7.1 times earnings. The rebased dividend is again offering a half decent yield at 4.66%. This easily beats the FTSE 100 average of 3.36%.

Of course there are risks. In the short term, oil prices could fall further, making BP shares even cheaper. In the long run, a green energy breakthrough could deal a fatal blow to fossil fuels. Politically driven windfall taxes are a risk whenever profits rise.

Yet in the long term I think BP can deliver both share price and dividend growth, and I want my share of that. I’m looking to buy while it’s still cheap.

The other FTSE 100 company vying for my attention is the mining giant. Rio Tinto (LSE: RIO). The commodity sector has been rocked by falling demand from China, whose economy now appears to be on a roll.

Another profitable hero

Even as Beijing tries to revive the economy and Western countries engineer a possible soft economic landing, Rio’s share prices have risen. It’s up 17.71% over 12 months, yet trades at just 10.2 times trailing earnings. This is well below the FTSE 100 average of 13 times.

Like BP, Rio Tinto shares give me good income, with the hope of more to come tomorrow. It is forecast to yield 5.9%, covering 1.7 times earnings.

My concern is that China’s glut of metals and minerals will decline even faster than markets expect. Natural resource stocks are notoriously cyclical, and we’re headed for the traditional summer slowdown. I plan to pounce on any sign of weakness (while hoping the stock doesn’t climb too high before I have the cash).

When central bankers finally start cutting interest rates, hopefully this summer, I’d expect both BP and Rio Tinto to enjoy re-ratings. I hope to add them to my stocks and shares ISA before that happens, while they’re cheap, rather than later. Then I’ll leave them there for years, and look for the next FTSE 100 share to buy.

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