I’m looking for top FTSE 100 companies that would fit nicely into a Stocks and Shares ISA, and I find two names particularly intriguing. Both have been hugely rewarding for investors but have now fallen out of favour. Could today be a good time to buy them?
Two years ago, they were riding high. Since then, the Admiral share price has crashed 35.09% and Hargreaves’s shares have plunged a thumping 48.62%. Admiral has recovered slightly, climbing 6.68% over the last year, but Hargreaves is still heading south, down 12.89%.
Last week, Admiral mustered a 4% rise in first-half pre-tax profits to £234m but that’s not much to shout about. Especially since it slashed the interim dividend by 15% at the same time. These are tough times for general insurers, as customers are squeezed while rising claims and labour costs drive up premiums.
Doesn’t float my boat
Admiral has been testing its pricing power by passing on costs to consumers, which has boosted income but at the cost of shrinking its customer base. It may be a price worth paying but nothing about this story excites me. The cost-of-living crisis still has some way to run.
Also, the FTSE 100 is currently packed full of high-yielding stocks trading at dirt-cheap valuations. Yet Admiral looks relatively pricey at 19.12 times earnings while yielding just 3.43%. I think I can find better value elsewhere.
The Hargreaves Lansdown share price just keeps falling. It’s down another 15% in the last month, making it one of the very worst performers on the FTSE 100. Its performance is highly sensitive to stock market movements, and it’s suffered from recent volatility.
Fears that the US Federal Reserve will carry on hiking interest rates and concern over a Chinese meltdown have delivered a double dose of punishment.
I remember when Hargreaves Lansdown shares routinely traded at around 24 times earnings. Today, they’re valued at 11.8 times forecast earnings for 2023. Suddenly I’m tempted and I’ve just found something else to like. The board has steadily increased its dividend per share in recent years and further progression is expected in the year to 30 June 2023, as my table shows.
|Dividend per share||33.70p||37.50p||38.50p||39.70p||41.00p*|
Hargreaves is slowly transforming from a growth stock into an income stock, which tends to happen when firms hit the FTSE 100. For years, the dividend barely topped 2%. Now investors can expect 5.44% this year and 6.05% in 2024.
Brighter times ahead
I’m coming round to Hargreaves Lansdown. At some point, interest rates will peak and stock markets recover. When that happens, private investors will flood back and its assets under management should rise
Hargreaves is no longer the young and hungry challenger. Instead, it’s the one to beat in a competitive market. Yet it remains popular with its customers and will grow when conditions allow. I will buy when I have more cash at my disposal. Let’s hope that happens before its share price starts to recover. By contrast, I’ll leave Admiral in dry dock for now.