2 high-risk FTSE 100 stocks I won’t touch with a bargepole
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For the likes of Intu Properties (LSE: INTU) things are going from bad to worse. The FTSE 100 share has been under the cosh for the past couple of years, true. But more recent news flow suggests it could be on the verge of extinction.
The Brexit uncertainty that has battered consumer confidence is proving quite tame compared with the upheaval that Covid-19-related lockdowns have caused. The prospect of a deep recession starting from the second quarter suggests that things will remain difficult for retailers. And by extension for this particular Footsie firm.
Fresh plans from Business Secretary Alok Sharma mean that retail property owners Intu could find it even more difficult to collect rents from its embattled tenants.
More bad news
The plans from Sharma will prohibit retail landlords from using “aggressive” tactics to collect rents. They will temporarily void statutory demands and winding up petitions issued to commercial tenants, for one. They will also prohibit landlords from using the Commercial Rent Arrears Recovery mechanism unless 90 days of rent is owed.
Sharma commented that “it is vital that we ensure businesses are kept afloat so that they can continue to provide the jobs our economy needs beyond the coronavirus pandemic.” This will come as little consolation to Intu Properties, however, when the company is already struggling underneath a suffocating mountain of debt and a catastrophe in rent collections.
So forget about its ridiculously low forward price-to-earnings (P/E) ratio of 1.1 times, I say. This FTSE 100 stock carries too much risk to warrant interest from sensible investors.
How about this FTSE 100 stock’s 6.6% yield?
Would investors be better off ploughing their cash into Rio Tinto (LSE: RIO)? Despite the coronavirus outbreak, iron ore values have remained remarkably robust. Indeed they have recently surged to 2020 highs on news that another mega miner, Vale, had slashed its production guidance for 2020. It’s a development that could remove up to 25m tonnes of iron ore from the market.
I fear that this price momentum could struggle to keep going, though. With a painful and prolonged downturn in the global economy lurking, I think demand from steel mills inside China and elsewhere could begin to unravel quickly.
Fresh figures from UBS have fanned my fears, too. According to the bank, worldwide crude steel production dropped 6% year on year in March. In China output dropped 2% while steel mills outside the Asian powerhouse toppled 11%. Hopes of a tightening iron ore market could very quickly unravel, then, dragging the commodity price lower and with it Rio’s profits.
This is why I don’t care much for the mining giant’s low P/E ratio of below 10 times for 2020. I’m also unmoved by its whopping 6.6% dividend yield. Rio is another FTSE 100 stock I am avoiding at all costs.
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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.