FTSE 100 shares are generally not known for their rocketing share prices. However, this is not to say that skilled stock pickers can’t still generate great gains over short periods of time.
Perfectly placed
Discounter B&M European Value Retail SA (LSE: BME) is among the best-performing stocks in the top tier so far this year. As I type, we’re looking at a gain of 31%.
For comparison, the FTSE 100 index is now showing a negative return.
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Perhaps we shouldn’t be surprised. The company was/is perfectly positioned to benefit from the cost-of-living crisis. Its 700+ stores sell all manner of goods, from frozen food to toys to furniture.
Thursday’s trading update was evidence of this. Revenue rose 13.5% over Q1.
This gives credence to management’s prediction earlier in the year that B&M will “grow sales and profits in FY24, despite economic uncertainty“.
So far, so good.
More to come?
After such a great run of form, however, I’m inclined to think that the valuation is now up to date with events.
A price-to-earnings (P/E) ratio of almost 16 for FY24 isn’t excessive considering the decent operating margins, at least relative to other firms in the Consumer Cyclicals sector. However, it does mean that there’s less wiggle room in terms of the company delivering on expectations.
Some profit-taking by investors who bought at the 52-week low back in October 2022 is also possible. Indeed, this could be behind the fall seen when the trading update was issued.
True, a 3.4% dividend yield isn’t shabby and I do think B&M might fare better than most FTSE 100 members in the remainder of 2023.
Given that I have enough retailers in my portfolio already, however, I’m not a buyer right now.
Budget-friendly
Another blue chip that’s been posting healthy gains (+27%) in 2023 so far is Premier Inn owner Whitbread (LSE: WTB).
At first glance, that might seem surprising. When pennies are being pinched, holidays and travel can be postponed.
Then again, Whitbread’s more budget-friendly rooms will likely have greater appeal when people don’t want to wait. And that seems to be what’s playing out.
Earlier in June, the company hailed an “outstanding performance” in Q1. Total UK accommodation sales were up 18% from the previous year. Trading in Germany, where the company is growing its presence, has also been solid.
Trouble ahead?
As good as all this sounds, one could argue that the true impact of higher interest rates is still to be felt. Trading might not be quite so stellar in the second half of 2023.
Like over at B&M, I’m also a little wary of the valuation now. A P/E of 19 feels pretty full for a hotelier, even though CEO Dominic Paul is keen to draw attention to “the lack of branded
supply growth and permanent decline in the independent sector“.
A forecast 2.4% yield for FY24 looks to be easily covered by profit but I could get more from a passive FTSE 100 fund…or even a cash savings account.
So, while I’d be very happy to have snapped up Whitbread stock at the start of the year, I’m not bursting to buy the stock now.
