The FTSE 100 index has had a pretty good August. Barring any dramatic change in the index in later trading today that disproportionately impacts the index, it should end the month around 1.3% higher than in July. This would be the fastest increase seen in three months.
This indicates continued investor optimism, and in the absence of any unmanageable risks, bodes well for it too. A number of stocks look good in this environment. But two of them have recently caught my attention as good potential buys.
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#1. Bunzl: robust financials
The FTSE 100 distribution services company released an encouraging half-year report for 2021 recently. It showed a 6.3% revenue increase and 12.3% pre-tax profit rise. Bunzl (LSE: BNZL) supplies disposable consumer products, including those used for catering and hygiene. This means that some of its business sagged during the pandemic. However, there was an uptick in demand for personal protection products. This second trend held it in good stead.
In fact, it expects “enhanced hygiene trends” to be a growth driver during the remainder of the year too. It adds to the overall buoyancy expected from the economic recovery. Another positive for Bunzl is that it pays a dividend, with a yield of around 2%.
However, its share price has run up a fair bit. As per my estimates, its current price-to-earnings (P/E) ratio is north of 40 times. This makes it pricier than some other promising FTSE 100 stocks, suggesting that a bigger dip can be in store for it as investor attention is turned to cheaper stocks for now. In September, I will wait for its price to dip further and buy it then.
#2. Just Eat Takeaway: share price dip
The share price for the food delivery app Just Eat Takeaway (LSE: JET) fell by 6% in the past week. Its share price has recovered slightly in today’s trading so far, but whether it sustains the improvement remains to be seen.
A couple of developments could be weighing on the stock. One, it is expected to exit the FTSE 100 index soon as it is more of a Dutch than a British company. Two, the New York City Council just imposed caps on the commissions charged by such apps. The company recently acquired Grubhub which could be hit as a result, since it accounts for 37% of the city’s sales through food delivery apps. Growth in the US market is already slowing down. And the company is loss-making at present as well. Lack of pricing power adds to this mix of challenges.
Nevertheless, I think it is still growing quite well and the food delivery market has much potential that can be realised in the coming years. Moreover, its share price has crashed in the past year, down by 25%, making it a far more affordable stock now. Going by how rewarding it has been for me to hold the stock of its peer Deliveroo, so far, I am encouraged to buy Just Eat Takeaway in September.
