We probably don’t need to be reminded that global stock markets had a pretty horrific first half of 2022. Having said this, some FTSE 100 stocks bucked the trend.
Today, I’m looking at two of the biggest ‘winners’ and asking whether they can keep this momentum going for the rest of the year.
Flying high
One of my favourite FTSE 100 stocks from an income perspective has long been defence giant BAE Systems (LSE: BA). While it may not offer the biggest yield in the index, its record of increasing dividends on an annual basis is exemplary. Personally, I’d much rather pick reliability over a company offering a stupidly-high yield that might not get paid.
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Income credentials aside, it’s BAE’s share price that has been on fire in 2022. No prizes for guessing why.
The invasion of Ukraine has shocked the world. It’s also pushed nations to increase, or at least maintain, defence spending. As a global player, that’s a potentially great tailwind for BAE. For example, it was recently announced that the US Department of Defense had awarded the company a $12bn contract to support its intercontinental ballistic missile systems.
Punchy valuation
Is all the good news now priced in though? Well, the shares are certainly more expensive to acquire than they once were. Having spent years looking pretty cheap, BAE now trades on almost 16 times earnings.
That’s getting punchy for a stock like this, especially as we might see some profit-taking when the war mercifully ends. So even though the earnings outlook feels solid, I’d say that risk has also increased here.
If I were looking for income, BAE would hit the spot. For income and capital gains from here, however, I’m looking elsewhere.
Back on track
Another FTSE 100 stock that’s done very well in 2022 has been Standard Chartered (LSE: STAN). As I type, the shares are up over 25%. That’s a far more impressive performance compared to index peers such as Lloyds Bank and Barclays. What gives?
One potential reason for the better form is that Standard Chartered does a lot of business in emerging nations and economies. Despite a resurgence of Covid-19, growth is expected to be better in these parts of the world compared to dear ol’ Blighty.
Low P/E but…
Shares in Standard Chartered still trade on a price-to-earnings (P/E) ratio of seven. That looks great value compared to the UK market as a whole. However, it’s important to compare oranges with oranges as much as possible. As far as the banking sector is concerned, that valuation is reasonable rather than screamingly cheap.
Of course, no one really knows what will happen to share prices in the near term. Such is the topsy-turvy world of the stock market, we can be more confident that equities will deliver over the next few decades compared to the next few months.
If pushed however, I’m a tad bearish. With sky-high inflation likely to put consumers off taking on debt to fund big-ticket items, I think it might struggle to repeat its recent share price performance going forward.
I could be completely wrong (and a well-covered 3% dividend yield is attractive) but I won’t be investing here.
