These are the five best-performing FTSE 100 stocks over the last month. Each business operates in a different industry, providing this basket with a nice amount of diversification if investors were to buy it today. But would buying these businesses actually be a smart move? Or is it a trap that could compromise investors’ portfolios?
Inspecting the winners
Over the last 30 days, the biggest winners within the FTSE 100 are:
- St James’s Place – Up 22.4%
- Ocado Group (LSE:OCDO) – Up 18.8%
- Haleon – Up 11.2%
- British American Tobacco – Up 11%
- Smith & Nephew – Up 9.7%
Altogether, this five-stock basket’s increased by an average of 14.6% in just one month. Considering the FTSE 100’s struggled to deliver more than 6% a year over the last decade, that’s an extraordinary return. And if such momentum could be maintained all year round, it wouldn’t take long for a modest investment to turn into a mountain of wealth.
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Obviously, earning a near-15% return each month is pretty difficult. In fact, even world-class investors like Warren Buffett haven’t managed to pull off that trick. But inspecting winners can reveal potential buying opportunities for long-term growth. So how can investors determine which ones are worth buying right now?
Diving into the weeds
Let’s take a closer look at Ocado. Despite being a big winner this month, zooming out reveals a pretty horrifying story – shares are down more than 80% since the start of 2021!
Ocado’s a business I’ve been bullish on in the past. The company’s best known for being an online grocery retailer. But behind the scenes, it’s developed an automated warehouse system that enables businesses to prepare and package online orders ready for shipping, drastically increasing efficiency. This robotics part of the business is what drew my initial excitement. But it seems I overlooked a critical factor – cost.
Developing and building these specialist warehouses has been incredibly expensive. And even now, the group’s seeing hundreds of millions of pounds rushing out the door. To make matters worse, it seems some customers are also losing interest. Kroger’s closed three Ocado-partnered sites, with Sorbeys hitting the pause button on another.
Automated warehouses use up a lot of electricity, and energy’s growing increasingly expensive to the point where human labour might simply be cheaper.
The bottom line
To Ocado’s credit, management’s seemingly reigning in expenses. Cash outflows are on track to reduce by £150m this year versus the previously expected £100m, thanks to lower capex and better cost controls.
On an adjusted EBITDA basis, its technology platform’s become the leading segment over the first six months of 2024. That’s likely why shares have moved in an upward trajectory over the last month.
Obviously, it’s an encouraging sign. Yet, even with these improvements to the cash burn rate, it seems likely that Ocado’s going to need to raise plenty more capital in the future. In fact, we’re already seeing this happen with £250m of convertible bonds being issued at the end of July.
So, personally, even with its recent positive progress, Ocado shares aren’t on my shopping list right now. This goes to show that just because a stock has performed well recently doesn’t guarantee that it will continue to do so in the future. The same applies to the other top performers of the last 30 days. Investors need to analyse what’s driving the returns and whether it can be sustained in the long run.
