We spend a large amount of time here at The Motley Fool talking about how FTSE 100 stocks can make you rich. Studies show that a well-balanced portfolio of blue-chip stocks can help you get rich and retire early. The large number of Stocks and Shares ISA millionaires provides further evidence of this. And the stock market crash is a great opportunity to pick some great shares up at rock-bottom prices.
That said, there’s a slew of FTSE 100 stocks that could end up costing you a fortune in the long run. Here’s a rundown of some of the Footsie shares I’d avoid like the plague right now.
Banks in bother
A bleak outlook for the British economy means I think investors should avoid FTSE 100 banks Lloyds, Barclays and RBS. The domestic recovery is proving to be extremely weak and this casts a huge shadow over these UK-focused companies. The likes of Lloyds could witness an explosion in the number of bad loans in the coming quarters.
Britain’s companies are sitting on a debt time bomb that threatens to explode. There could be as much as £107bn worth of unsustainable corporate debt in the UK by next March. That’s according to financial services lobby group TheCityUK. And more than a third of this is held by small businesses.
Lloyds and other banks have already stashed hundreds of billions of pounds away to cover Covid-19-related turbulence. It’s probable that they will have to go to the well to draw out more eye-popping provisions to cover the cost of the crisis. And they face significant long-term problems like low interest rates and rising competition too. I’d avoid these FTSE 100 shares at all costs.
More high-risk FTSE 100 shares
Investing in UK retail is a dangerous proposition today too, I feel. There are some bright spots to be had, though. I’d buy shares in low-cost retailers like B&M European Value Retail as they become more popular during times of recession such as these. I’d invest in e-commerce specialists like ASOS that can gain from the internet shopping phenomenon too.
I’m more reluctant to invest in retailers with significant physical store estates (like former FTSE 100 stalwart Marks & Spencer) though. They stand to lose out most in these tough economic times. And particularly so as Covid-19 infection fears and social distancing requirements limit the number of customers passing through their doors.
By extension, I’m staying away from shopping centre and retail park operators like FTSE 100 companies British Land and Land Securities. This is not the only reason I’d avoid these blue-chips though, as the pandemic casts doubt over what demand for their office spaces will be like in the future.
The Square Mile’s top 30 employers said in late April that between 20% and 40% of their workers wouldn’t return to their desks any time soon. That was according to City of London Police commissioner Ian Dyson. Deserted streets across London and empty train carriages since then suggest that companies remain reluctant to bring their workers back. The pandemic has caused firms of all sizes to reassess their attitudes towards homeworking. And it could have a devastating long-term effect on suppliers of office space like those FTSE 100 companies.