Got £1,000 to invest? I’d buy one of these FTSE 100 stocks, but avoid the other

This FTSE 100 (INDEXFTSE:UKX) company has the future wrapped up, thinks Harvey Jones.

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It’s tough on the high street as shoppers shift online and Brexit erodes confidence. Some retailers have risen to the challenge – for example, clothing chain Next is making its virtual and bricks & mortar sales outlets work together. Sadly, the following stock has fallen short and looks set to drop out of the FTSE 100 in Tuesday’s reshuffle as a result.

Marks & Spencer Group

Online shopping isn’t the problem afflicting Marks & Spencer Group (LSE: MKS), its once mighty fashion arm lost its spark years ago. When I wander into its clothing departments, which I do occasionally out of professional curiosity, I find them way too drab for me – and I’m in my 50s now. 

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M&S food stores remain a source of bustling wonder and delight, but they operate in a competitive market, just ask any of the big supermarkets. The £3.71bn group is making up lost ground in online retailing through its tie-up with Ocado, but this has come too late to save its FTSE 100 status.

Back in 2007, pre-tax profits topped £1bn, but by 2019 they’d almost halved to £581m. Profit after taxation has slumped from £506m in 2014 to £29.1m.

The widespread unease about the group’s upcoming demotion from the FTSE 100 blue-chip rollcall shows the grip Marks had on a nation where it was the cornerstone of every high street or shopping centre that took itself seriously. Stores close, the world moves on.

My heart yearns for management team Archie Norman and Steve Rowe to turn things round. But my head says leave them to it, because the Marks & Spencer share price has disappointed for far too long. It’s down a third measured over one year, more than a half measured over five.

Yes, it looks a bargain trading at a forward valuation of 9.5 times earnings. It also offers a juicy forecast yield of 6.1%, with cover of 1.7, but I’m still sceptical. Right now, plenty of other dividend growth stocks look to be better bargains.

Mondi

The rise of e-commerce is a boon for global paper and packaging company Mondi (LSE: MNDI). However, you wouldn’t know by looking at its share price, which is down 28% over the last year, as the group battles macroeconomic worries, higher maintenance costs, and what it calls the “mixed” pricing outlook for 2019.

Mondi also has to operate in the teeth of a packaging backlash, as consumers intermittently worry about all those corrugated boxes encasing their shiny new online purchases. It’s responding by reducing material and energy consumption, although there’s only so much it can do.

The £7.75bn group delivers strong returns on capital with wide margins, and has increased its dividend in nine out of the last 10 years. The forecast yield is now a solid 4.5%, while cover of 2.2 gives hope of progression. A forecast valuation of 9.9 times earnings makes the Mondi share price look tempting, given the sector’s long-term growth potential.

It could be a bumpy journey, with earnings forecast to fall 7% this year and by 1% the year after. I’d buy it ahead of Marks & Spencer, though.

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Harvey Jones 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.

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 considered, so you should consider taking independent financial advice.

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