When deciding which FTSE 100 shares to buy, I’m always wary of picking recent winners. There’s a danger of buying at the top of the cycle and suffering a quick and brutal loss, instead of the hoped-for gains. I’m wary of bandwagon jumping.
Yet all too often I refuse to buy a stock for that reason, only to watch it soar even higher. So how do the best FTSE 100 stocks of the last year stack up today?
Picking winners
Far and away the best performer of the last 12 months is aircraft engine maker Rolls Royce (LSE: RR), up 204.53% in that time. If I’d invested £10k a year ago, I’d have £30,453 today.
Funnily enough, I really did buy Rolls-Royce a year ago, right at the bottom of the cycle. Sadly, I only invested a tiny sum, even by my modest standards. I thought it had been oversold, but I didn’t expect what happened next.
This kind of fabulous return can play with your mind (if only, if only…). What I will say is this. There’s next to no chance of Rolls-Royce growing another 200% in the next 12 months, in my view.
It’s finished its catch-up phase, with the stock now trading at 109 times earnings. Now comes the long, hard slog of building profitability and dividends. I’d like to buy and hold the stock for the long term, but I’ll watch and wait for a dip.
British Gas owner Centrica (LSE: CNA) is the second best FTSE 100 performer over the last year, up 124.47%. As an oil and gas producer, its stock has benefited from Putin’s invasion of Ukraine and the subsequent energy shock.
Profits at British Gas Energy are soaring too, as changes to the energy price cap allow it to recover more costs.
First-half statutory operating profits jumped from a £1.1bn loss in 2022 into a £6.5bn gain. Middle Eastern uncertainty is giving it a further lift, with Brent crude oil price back around $90.
I’m more tempted to buy Centrica than Rolls but I can’t quite do it. Again, it’s gone too far, too fast for my liking. I have to accept that I’ve missed out.
I’m still buying losers
So what about third placed Marks & Spencer Group (LSE: MKS), which has regained its FTSE 100 slot after rising 118.81% over the last year? That’s quite a turn around, given its long-term struggles and the wider retail malaise.
Revenues jumped 9.6% in 2023 to £11.93bn, with pre-tax profits up 21.4% to £475.7m.
Chairman Archie Norman has helped turn the business around after what he calls “years of drift”, freeing the group from the shackles of its legacy store network and making a belated digital shift. Soon it may restore the dividend too.
M&S still looks good value at 11.9 times earnings, and if it can put on a show during the cost-of-living crisis, it should do even better once conditions improve.
Once again though, I’m struggling to buy a stock that’s more than doubled in a year. I hate arriving to a party late. Instead, I’ll stick to buying tomorrow’s ‘losers’, in the hope they turn into future winners further down the line. I’d rather invest before they grow 100%, rather than afterwards.
