DIY giant Kingfisher (LSE: KGF) has been one of the FTSE 100’s success stories following spring’s stock market crash. The blue chip’s share price has exploded 60% from the troughs struck in the middle of March. By comparison, the broader index has edged 15% over the same period.
It’s not a mystery as to why Kingfisher has boomed. While much of the broader UK retail sector has struggled, sellers of home improvement and garden products have exploded. With lockdown measures now being rolled back, though, I fear that the Footsie firm will start to feel the heat again.
The swift deterioration in economic conditions mean that demand for its goods from both individuals and trades is likely to come under pressure. A possibly protracted decline in the UK housing market threatens to put its revenues on the back foot again. The outlook is even worse in France than it is on these shores, too; sales there have continued to tank in the first half of 2020.
Kingfisher’s share price has risen more recently, sure. But the 45% decline posted over the past five years illustrates its earnings prospects more accurately, in my opinion. This is a FTSE 100 stock I think should be avoided.
One more FTSE 100 trap?
Tesco (LSE: TSCO) is another Footsie firm whose share price bounced from the lows hit following the stock market crash. Investors ploughed into Britain’s biggest supermarket as a bet on its exceptional defensive qualities. Whatever economic and social upheaval we face as a society, we all still need to eat, right?
A slew of industry data boosted dip buyers’ appetites, too. Kantar Worldpanel data, for instance showed UK grocery sales rocket 14.3% during the 12 weeks to 17 May. This was the biggest jump since records began a quarter of a century ago. And Tesco led the so-called Big Four operators with a 12.5% increase.
Too risky
On paper buying into food retailers is a great idea. But in practice buying Tesco shares is a dangerous idea. The groceries goliath may have outperformed cut-price operators Aldi and Lidl in the aforementioned 12-week period. This reflects in large part the FTSE 100 firm’s extensive online operations, demand for which naturally rocketed as the UK entered lockdown.
However, with lockdown restrictions being eased and citizens getting out and about again, Tesco again faces loses swathes of its customers to the German discounters. In fact, with the UK facing the sort of economic meltdown not seen for three centuries (not my own view, but that of the Bank of England), it’s likely that it will continue losing market share to its cheaper rivals. The fact that Aldi is dipping its toe into the online grocery sector should come as further alarm, too.
Now Tesco’s shares aren’t expensive. At current prices around 225p per share they trade on a forward price-to-earnings ratio of 15 times. They’re not cheap enough to tempt me in, though. This is a share whose long-term outlook remains cloudier today than ever.
