Markets remain volatile, but a swathe of FTSE 100 stocks have posted terrific price gains in the past month. Yet if I was a shareholder of two recent blue-chip risers, I’d sell now and buy into some of the other great opportunities out there. Here’s why.
DIY SOS
Sellers of DIY and gardening products have enjoyed a roaring trade since re-opening their doors in recent days. Those retailers with online operations have been enjoying solid demand for some weeks though, giving housebound Britons something to do during the lockdown period.
It’s a trend that’s helped B&Q and Screwfix owner Kingfisher (LSE: KGF) sail higher. In fact, its share price has soared 13% over the past few weeks. Its ascent has been aided by trading details released earlier this week in which it advised e-commerce sales had quadrupled since mid-March. Sales in the UK and Ireland are also back in recovery following the re-opening of its stores
Call me a stick in the mud, but I’m afraid I’m not bowled over by Kingfisher. It’s possible that ongoing quarantining will keep sales of its home and garden products performing well for a little longer. But the outlook is a lot murkier beyond the next few months, with a painful recession coming down the tracks. It’s possible conditions could be even more difficult in its long-embattled French businesses too, given the greater economic decline there following the Covid-19 outbreak.
Despite recent share price rises, Kingfisher’s still pretty cheap. The Footsie firm currently trades on a forward price-to-earnings (or P/E) ratio of around 12.5 times. But I consider the retailer’s investment case to be far too risk-heavy. In fact, I reckon existing shareholders should use strength in recent weeks as an opportunity to cash in and buy other great opportunities in the FTSE 100 instead.
Another Footsie nightmare
I’d also be tempted to book profits at Centrica (LSE: CNA) after price rises of its own. The British Gas owner has risen 7% over the past month as the clamour for safe havens has grown. Utilities, of course, are popular picks during tough economic periods, due to their stable earnings profiles.
However, I wouldn’t consider Centrica to be a suitable pick for risk-averse investors. The rate at which it continues to lose customers makes it anything but. In fact, the coronavirus outbreak will likely speed the rate at which its client base is eroding, given the extra pressure on households’ spending in a recessionary environment. It also has to contend with earnings-crushing price caps.
It’s likely the number of switchers to smaller, cheaper electricity and gas suppliers will gradually pick up steam. A recent report from IHS Markit on household finances reveals the growing strain on Britons’ wallets. This shows household finances are at their weakest levels since 2011.
On top of this, the prospect of prolonged weakness in oil prices muddies the profits outlook for Centrica’s upstream division. The FTSE 100 firm’s P/E ratio of 9 times might be a cheap. But I, for one, won’t be tempted. I’d rather buy one of the Footsie’s other genuinely-brilliant bargains.