2 FTSE 100 stocks that could make you extremely poor

Royston Wild looks at two FTSE 100 (INDEXFTSE: UKX) stocks with exceptionally poor investment potential.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

It doesn’t surprise me that J Sainsbury (LSE: SBRY) has seen its share price slump again during the second half of 2017 following a pretty impressive start to the year.

In fact, I was quite taken aback at the FTSE 100 retailer’s ascending market value up until May as the fragmentation of the UK grocery space continued to pick up momentum. This is forcing the likes of Sainsbury’s to put its already thin margins under pressure via heavy and relentless price slashing, a phenomenon that is adding to the profits pressure created by rising costs.

Latest Kantar Worldpanel data in mid-September showed that £1 out of every £8 in the country’s supermarkets is now being spent at either of the German discounters Aldi and Lidl, and that two-thirds of Britons have visited either store in the past three months.

And the increasing strain on household budgets created by stampeding inflation and stagnating wage packets is likely to attract more and more of J Sainsbury’s customers through their doors, with both firms engaged in massive expansion strategies to exploit this phenomenon.

Flash in the pan?

Look, Sainsbury’s has performed pretty impressively in light of these tough trading conditions more recently, and like-for-like sales grew 2.3% (excluding fuel) during the 16 weeks to July 1. And the company’s acquisition strategy that saw it buying Argos last year has also been pretty impressive. However, I remain cautious over the long-term picture at the London business as competition both online and in-store accelerates.

The City expects earnings at Sainsbury’s to fall 9% in the 12 months to March 2018, the fourth successive reverse if realised, and I would not be surprised to see a predicted 13% bottom-line recovery in fiscal 2019 fall flat.

I reckon bargain hunters should ignore a low forward P/E ratio of 12.8 times given that J Sainsbury’s share price could keep on plummeting.

Turning the screw

Kingfisher (LSE: KGF) is another Footsie-quoted share I expect to endure expected profits trouble, its operations struggling for traction in mainland Europe as well as in the UK.

The DIY giant also surprised with its latest set of trading details earlier this month, Kingfisher advising that it had generated underlying pre-tax profits of £440m in the six months to July, up 0.9% year-on-year.

But the release underlined the problems it continues to face in its key markets. Group sales at constant currencies fell 1.3% in the first half, with turnover in France plummeting 4.1% on the same basis and revenues in the UK and Ireland dropping 0.4%

The B&Q and Screwfix owner is feeling the strain from tough trading conditions in its core markets, while the disruption created by its transformation strategy is adding further stress to the top line. So City brokers are expecting earnings to fall 2% in the 12 months ending January 2018, resulting in a forward earnings multiple of 12.5 times.

This is also low on paper, but again does not reflect the fact that this figure, as well as predictions of an 11% profits recovery next year, could disappoint. I reckon share pickers should continue to steer well clear of Kingfisher right now.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Dividend yields up to 10.1%! Which of these cheap FTSE 250 stocks should I buy?

The FTSE 250's packed with exceptional bargains today. But which of these shares would be the better selection for market-beating…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

I’d buy these FTSE 100 and FTSE 250 shares (and this trust) to target a £1,130 second income

These UK blue-chip shares offer market-shattering dividend yields above 7%! Here's why I'd buy them to build a long-term second…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »