3 Of The Biggest ‘Sells’ In The FTSE 100: BT Group plc, Associated British Foods plc And Relx PLC

These 3 stocks do not appear to offer an enticing investment opportunity: BT Group plc (LON: BT.A), Associated British Foods plc (LON: ABF) and Relx PLC (LON: REL)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While the fact that the FTSE 100 is within 5% of its all-time high does not necessarily mean that it is overvalued, there are a number of stocks within the index that appear to offer poor value for money. Of course, this does not mean that they are low-quality businesses or that they are badly run. It simply means that their share prices and valuations seem to be excessive and, for investors looking for either a lucrative income or impressive capital gains, there are better options elsewhere.

A notable example is BT (LSE: BT.A) (NYSE: BT.US). There is currently a buzz surrounding the company as it has recently transitioned from landline and broadband provider to quad play operator, with a very appealing pay-tv and great value mobile phone offering now in operation. Furthermore, its proposed takeover of EE would create a major player in the mobile market and allow BT even more scope to cross-sell its products to a new set of customers.

However, while BT does have a bright long term future, its current valuation appears to be too high. For example, it currently trades on a price to earnings (P/E) ratio of 15.7 and, looking ahead, there could be a number of challenges ahead for BT.

Firstly, the EE deal may be blocked by the regulator, which has voiced concerns over BT’s control over the telecoms and media market. Secondly, BT’s balance sheet is not particularly strong, with a large pension liability meaning that a rights issue may be required if the EE deal does come off, while thirdly, BT is giving away many of its products at very low prices, which may not be healthy for its margins.

Similarly, ABF (LSE: ABF) also offers poor value for money. Its Primark division has been a superb performer in recent years, but with the UK economy improving and disposable incomes rising in real terms, shoppers may choose to move away from discount stores and return to the purchase of higher priced brands. As such, ABF’s future performance may be hurt somewhat, while a continued supermarket price war may also cause its margins to be suppressed somewhat. And, with ABF trading on a P/E ratio of 32.6 despite its profit being set to fall by 6% this year, it appears to be hugely overvalued.

Meanwhile, Relx (LSE: REL), formerly called Reed Elsevier, has seen its share price soar by 115% in the last five years. However, it now looks richly valued, with it having a P/E ratio of 18 despite its growth prospects being roughly in-line with those of the wider index. In fact, Relx has a price to earnings growth (PEG) ratio of 2.4, which indicates that its medium term prospects may already be priced in. As such, its share price could come under pressure moving forward, thereby making now the right time to sell and invest elsewhere.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Fans of Warren Buffett taking his photo
Investing Articles

Warren Buffett believes this one investing rule is key to his success

In this article, I'll use my position in a UK-listed ETF to help illustrate a well-known 'investing trick' that's favoured…

Read more »

Investing Articles

How many National Grid shares must I buy for a £100 monthly second income?

I think National Grid could be one of the safest options for investors seeking a dividend income. And today its…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

NIO stock is down 90%. Will it recover?

NIO stock has fallen significantly from its 2021 all-time high. But could now be a chance for this Fool to…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

These 2 UK shares could help me reach £1,000,000 in my Stocks and Shares ISA

A FTSE 100 compounding machine and a FTSE 250 value stock are the UK shares Stephen Wright thinks could help…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

If I’d invested £1,000 in Lloyds shares at the start of the year, here’s what I’d have now

The stock market is unmoved, but Stephen Wright thinks last year’s record profits might give Lloyds shares a long-term boost.

Read more »

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

I’ll snap up shares in this growth stock in March if others don’t get there first

This Fool says shares in this growth stock are stable, full of profit, and might be undervalued. But there are…

Read more »

Rainbow foil balloon of the number two on pink background
Investing Articles

My 2 top energy investment trust picks for a passive income

I'm aiming to buy more of these investment trusts for a passive income and the reasonably stable energy sector returns…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

5.5% dividend yield! Shares like these could be great for my retirement

Oliver Rodzianko thinks this company with a stellar dividend yield could be very useful when looking for income from his…

Read more »