A month ago, the FTSE 100 fell below 5,000 for the first time since the financial crisis. The index is now up by about 15% from its March low, but a number of its stocks have printed much bigger gains.
The three top-performing FTSE 100 stocks over the last month have each risen by more than 40%. But, as I’ll explain, I’d only buy one of these shares today.
Gold star
Shares of gold miner Polymetal International (LSE: POLY) are up by 44% since the 23 March. This stock has now doubled in 12 months, making it the best performer in the lead index over the last year.
It’s not hard to see why Polymetal is doing so well — the gold price has risen by more than 30% over the last year. This helped to power a 36% rise in the group’s profits, which rose to $483m last year.
I think Polymetal International is a good company, with fairly low costs and decent mines. But the firm’s shares are now priced to reflect an expected 54% increase in earnings this year.
If the price of gold stays high, this forecast looks reasonable to me. However, there’s no guarantee gold will continue to rise. In my view, any weakness in the price of the yellow metal could cause a sharp sell-off in Polymetal shares.
Although I’d quite like to own this company, I don’t think now’s the best time to buy.
You may have missed this 45% riser
The top-performing FTSE 100 stock over the last month is specialist asset manager Intermediate Capital Group (LSE: ICP). The ICG share price has risen by 45% since the market bottomed on 23 March. However, the firm’s shares are still down by 40% this year.
These huge swings suggest to me the market is unsure about the outlook for this business. I can see why. Intermediate Capital specialises in so-called private debt. The company raises money from investors, which it lends to small- and medium-sized companies.
At the end of December, ICG had a total of €42.6bn under management. However, the Covid-19 pandemic could cause a big increase in corporate bad debts. If this happens, Intermediate Capital could be forced to write down the value of its loans.
It’s too soon in this crisis to know how bad any loan losses might be. But I’d note that Intermediate Capital’s share price fell by more than 80% in the last financial crisis. In my view, it’s probably too soon to be buying these shares.
I’d buy this FTSE 100 stock today
One FTSE 100 financial stock I would buy today is Legal & General Group (LSE: LGEN). Although this insurance and asset management giant could face losses on some of its investments as a result of the coronavirus pandemic, I feel L&G’s long-term focus, size and diversity make it a fairly safe investment.
At the end of December, Legal & General had £1.2trn of assets under management. The group is the largest manager of corporate pension schemes in the UK and is also one of our biggest life insurers.
Recent years have seen the group deliver consistently strong cash generation and, unlike some rivals, L&G intends to pay a final dividend for 2019.
At current levels this FTSE 100 stock trades on six times forecast earnings, with a dividend yield of 9%. I think that’s too cheap and rate Legal & General as a long-term buy.