Up more than 20% since January, I think these FTSE 100 shares have more to give

Rolls-Royce and Barclays are two of the best-performing FTSE 100 shares so far this year. Stephen Wright thinks there might be more to come from both.

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Overall, the FTSE 100 has done well in 2024, but some shares have performed better than others. Two that have done exceptionally well are Rolls-Royce (LSE:RR) and Barclays (LSE:BARC).

Both have benefitted from a favourable macroeconomic environment and I think this looks set to continue with interest rates set to fall this year. At least, that’s how things look.

Rolls-Royce

Rolls-Royce shares have been on the rampage since the start of 2023. While this has continued in 2024, the focus has shifted from recovering demand for air travel to balance sheet improvements.

The possibility of a recession is still an issue – the company’s revenues are still closely tied to engine usage. And if people start flying less, this will be bad for the business overall. 

As I see it though, there are two catalysts that can push the share price higher in 2024, even after a 40% gain so far. One is an improved credit rating and the other is lower interest rates.

Both should allow the company to refinance its existing debt at lower rates. This would leave it paying less in interest and improving profit margins. 

Rolls-Royce has already received ratings upgrades from each of the major agencies this year. Where interest rates are isn’t under the firm’s control, but it looks likely they’re going down from here.

Barclays

Shares in Barclays are up 25% this year due to the company’s impressive results from 2023. The bank made the most of high interest rates, achieving wider lending margins than its rivals.

For this part of the business, falling interest rates would likely be unhelpful. It’s worth noting that the bank isn’t entirely dependent on its retail operations.

Unlike other UK banks, Barclays combines a big retail franchise with a significant investment banking division. That means part of its business stands to benefit from lower interest rates.

In general, lower rates are better for investment banking activity. So I’d expect results from this part of the company to improve as interest rates come down.

The recent rally in the Barclays share price has been driven by 2023’s strong profitability. But the next catalyst for the stock looks like investment banking activity picking up again.

A mistake to avoid

Nobody likes buying anything at a higher price when they once saw it selling cheaper and shares are no exception. But dismissing a stock that has gone up a lot recently can also be a costly mistake. 

Rolls-Royce is a great example of this. Investors who decided against buying the company’s shares in January because of its spectacular performance in 2023 would have missed out on a 40% return.

No other FTSE 100 shares could have made up for this. So it’s important to note that the fact a stock’s gone up significantly doesn’t automatically mean it can’t keep going or that it isn’t a bargain.

I think both Rolls-Royce and Barclays are good illustrations of this. Each has been performing well – and their current share prices are reflecting this – but I think either might still have more to give.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc and Rolls-Royce Plc. 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.

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