The FTSE 100 index currently sits a little under 7,600. Had you purchased a bog-standard tracker or exchange-traded fund exactly one year ago and left your money where it was, you’d have achieved a return of around 3.4% (excluding any dividends received and reinvested, tracking error and fees).
While not a bad result, this pales in comparison to the gains made by some of the companies that actually help make up the index. Big oiler BP (LSE: BP) is a great example.
Growth-focused
In a year, BP’s share price has gushed just over 30% higher thanks in part to the surge in the value of black gold. When you consider that it was already one of the UK’s biggest companies, that’s quite some return.
Based on last week’s developments, I wouldn’t be surprised if this momentum continued.
On Wednesday, the company announced that it would be increasing its share in the Clair oilfield (located 75km west of Shetland and regarded as a “core asset” of BP’s UK operations) by purchasing a 16.5% stake from ConocoPhillips. This would bring its total interest in the field to 45.1%. At the same time, the £116bn cap revealed it would be selling its non-operating interest in an Alaskan asset (Kuparuk) to the latter. According to BP, these “cash–neutral” deals are likely to complete this year.
Based on the behaviour of its share price on Wednesday, the market seemed to welcome news of the swap and BP’s desire to focus on those assets which show the greatest potential. The move also appears to have sent the rumour mill into overdrive with suggestions that the FTSE 100 behemoth may now bid for fractured-basement play Hurricane Energy.
It’s not all about acquisitions and growth, though. Another thing that BP has going for it (from an investment perspective) is the cracking 5.2% yield being offered for the current year. While the oil sector is arguably riskier than most, this feels like adequate compensation for any volatility holders may have to endure.
Right now, BP’s shares trade on 14 times expected earnings. If you believe that oil might get even more expensive going forward, then this could still be a fair price to pay.
Quality…but at a price
BP isn’t alone in crushing the performance of the FTSE 100 over the last year. At 57%, owners of stock in self-styled ‘investment supermarket’ Hargreaves Lansdown (LSE: HL) have enjoyed an even better gain. Based on its mid-May trading update, I’m really not surprised.
Over the four months to the end of April, the company secured net new business of £3.3bn, no doubt supported by the clamour to open stocks and shares ISAs before the deadline. A total of 60,000 new clients signed up with the firm, meaning that Hargreaves now has well over a million people on its books and £88.8bn in assets under administration.
So, would I buy-in now? Probably not. While clearly a quality company — and one whose stock is understandably expensive most of the time — a forward P/E of 34 feels a little too dear. Indeed, this somewhat frothy valuation, when combined with a very average 2% yield (relative to BP’s chunky payouts) and a suspicion that markets could get more turbulent as the UK makes its EU exit leads me to think that now could actually be a good time to bank some profit.
