The FTSE 100 has dropped close to 2% so far this morning (23 March), and Tesco (LSE: TSCO) shares are slipping too. That shows how nervous investors are as Iran tensions ratchet up again. Yet Britain’s biggest grocer has still been pretty resilient.
The Tesco share price is down just 5% over the last turbulent month. Given the scale of losses elsewhere, that’s pretty impressive. It’s not as impressive as FTSE 100 motor insurer Admiral Group (LSE: ADM), though. Its shares climbed more than 11% over the same period. Only two FTSE 100 stocks have done better — oil giants BP and Shell. That’s pretty remarkable. Can Tesco and Admiral continue to do well?
Solid FTSE 100 stocks
I’d have thought Tesco would be on the front line of current volatility. As oil prices rise, food production and transport costs could jump too. The cost-of-living crisis is back even before it was over. There have even been lurid headlines warning of food rationing. And with all the political noise around profiteering, Tesco may struggle to pass on higher costs without attracting criticism.
If costs rise faster than Tesco can increase prices, margins could be squeezed. On the other hand, it may be better placed than rivals to withstand a price war.
The Tesco share price has been powering on for some time. As of early this morning it was up 45% over the last year and had doubled over five years. It isn’t especially cheap as a result, with the price-to-earnings ratio nudging 17. The dividend yield has dipped below 3%.
I prefer to buy shares after a pullback, when valuations tend to be more attractive and yields higher. That said, Tesco is holding up well, and I can see why investors might still consider buying its shares.
But why is Admiral flying? If customers are feeling the pinch, I’d expect them to shop around for cheaper car and home insurance, intensifying competition in an already cut-throat market. It could be that the shares are still getting a lift from a strong set of results on 5 March. Pre-tax profit jumped 16% to a record £957.9m, while the customer base grew 7%.
The board also raised the dividend by 7% to 205p and treated investors to a special payout of 17.2p per share. Admiral isn’t just a UK story either, as the board highlighted strong results in France and a rapid recovery in Italy. Unlike Tesco, Admiral’s shares were treading water before this recent surge. They’re still up just 9% over one year and 8% over five.
There are risks here too. Beyond squeezed customers, claims inflation remains a concern, as higher repair and replacement costs could eat into margins if pricing doesn’t keep pace. In contrast to Tesco, Admiral still looks reasonably priced, with its P/E ratio just under 13. The income is juicier too, with a trailing yield of 5.1%.
I’m surprised both stocks are holding up so well. Both could still struggle if Middle East tensions intensify. But I think they’re worth considering, especially Admiral for that income stream. Personally though, I’m on the hunt for FTSE 100 shares that are cheap after taking a much bigger beating, but have long-term recovery potential. I can see plenty out there right now.
