September is turning out to be a rotten month for FTSE 100 shares, with many constituents faring far worse than the 5% decline seen in the index. Will October bring some kind of relief?
I’ll save you some time: no one truly knows. However, it probably pays to consider the possibility that it won’t. This might be particularly true for any company announcing results. Speaking of which…
Losing customers?
Supermarket titan Tesco (LSE: TSCO) releases an interim statement on 5 October.
Now, I remain a big fan of this company as a core investment. It possesses an enormous share of the UK market and boasts solid income credentials. The shares are down to yield 5% this year.
On the flip side, the near-term outlook is undoubtedly gloomy. While still competitive in price, it’s not unrealistic to imagine that a few customers have defected to German budget chains Aldi and Lidl in recent months. Perhaps in anticipation of this news, Tesco shares are down almost 16% in the last month alone.
On a more positive note, this leaves the stock trading on a price-to-earnings (P/E) ratio of 10. That’s not exactly expensive relative to the consumer defensive sector as a whole. So, nightmare October or not, I’d be comfortable buying Tesco shares today if I had the cash.
Notwithstanding this, I’d still look to diversify away from the sector as a precautionary measure.
Canny contrarian buy?
Also reporting next month is financial services firm Hargreaves Lansdown (LSE: HL).
Shares in the financial services firm are down 36% year-to-date and understandably so. Revenue and assets under management are down as existing customers have prioritised paying bills over investing.
Things could go from bad to worse when the company announces interim numbers on 19 October. After all, Hargreaves was already struggling to attract new business. I can’t see how that situation has improved since.
Then again, there will come a time when the sellers dry up. And, right now, the stock already changes hands for 17 times earnings. That’s actually very decent when compared to the five-year average (31 times). So, if Hargreaves can surprise even slightly on the upside, a nightmare October may be off the cards as shorters rush to close their positions.
There’s clearly risk here. However, as a buy for the long term, I like what I see. It goes on my watchlist.
Brand power
Consumer goods superpower Unilever (LSE: ULVR) releases a trading update on 27 October.
Like Tesco, I’m a big fan of the Marmite-maker. It’s a truly global business, boasting an enormous portfolio of brands that people love and/or buy out of habit. Once again, however, one must question whether even Unilever can withstand the cost-of-living crisis. If not, Halloween might be coming early.
I can see both sides. On the one hand, it’s reasonable to think consumers will swap branded goods for cheaper alternatives. That could impact company earnings at a time when it was already struggling to register meaningful growth.
On the other hand, it’s also reasonable to say that demand for the sort of affordable luxuries supplied by Unilever should remain pretty inelastic. In other words, people still want them, even if the price goes up.
At 18 times earnings, the shares are hardly cheap. But I’m far more interested in quality companies like this over other FTSE 100 shares.