UK share investors have hundreds of companies to choose from. There are dozens and dozens of FTSE 100 shares for them to select from alone.
Investing in shares is riskier than putting cash in a savings account. But this huge range of London-listed companies means share pickers dont have to take massive risks to make decent returns.
But I think these FTSE index businesses are best avoided right now. I certainly won’t be buying them.
BP
It’s tough to predict in what direction oil and gas prices will head next year. On the one hand, fossil fuel supplies are tight and production cuts from OPEC+ countries are worsening the problem.
But then the global economy is poised for a sharp slowdown that could hammer demand for all commodities. A major determinant for crude prices next year will be signs of a ceasefire in Ukraine. But how and when the conflict in Eastern Europe will end remains impossible to accurately predict.
But this near-term uncertainty isn’t deterring me from investing in BP (LSE:BP) stock. I’m actually avoiding this FTSE index oilie like the plague due to the threat posed by renewable energy.
Legislators are accelerating their carbon-cutting programmes in response to the escalating climate crisis. This is why industry experts are bringing forward their predictions of when ‘peak oil’ demand will happen.
Consultancy Rystad Energy, for instance, now expects this to happen in 2026. This is two full years ahead of its prior forecasts.
BP is investing heavily in alternative fuels and renewables. But it continues to prioritise investment in oil and gas production, creating huge danger for investors. Quite how the business will generate healthy profits in the coming decades is highly uncertain.
J Sainsbury
Traditional supermarkets like Sainsbury’s (LSE:SBRY) face significant pressure in both the long term and beyond. Due to heightening competition, their paper-thin profit margins look more vulnerable than ever.
Just last week the company escalated the race to the bottom by offering dirt-cheap Christmas food. Along with budget chains Aldi and Lidl, it’s offering certain festive staples for as little as 19p.
Along with Tesco, the FTSE 100 supermarket is trying to match the German chains blow for blow. The trouble is that this expensive programme is taking a big bite out of profits and by extension, reducing investor returns.
The underlying operating margin at Sainsbury’s retail operations sank 42 basis points (from 3.37% to 2.95%) in the 28 weeks to 17 September. And things are likely to get rapidly tougher for the established grocers as their rivals increase their geographical reach.
Rapid store expansion means disruptor Aldi is now the country’s fourth-biggest supermarket by market share. And while Sainsbury’s is investing heavily in grocery delivery to drive growth, industry competition online is also rapidly intensifying.
So forget about Sainsbury’s and BP. I’ll be buying UK shares that pose less risk to my wealth.
