The FTSE 100’s back above 6,000 points! I think you should avoid this cheap stock though

Are you scouring the FTSE 100 for brilliant bargains? Royston Wild talks about a low-cost blue chip that investors should walk straight past.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 100 is having a right old riot in Wednesday business. It’s mounted the 6,000-point marker for the first time since the middle of March. And it continues to gain ground this afternoon. A 7% rise so far in April suggests that one of the index’s best monthly performances in a very, very long time is imminent.

I don’t think Footsie investors should get too giddy, though. Buying has picked up on expectations that quarantine measures across the globe will keep being lifted. But, any signs of a pick-up in infection rates could prompt a fresh clampdown from authorities. A rise in the number of diagnosed cases in Germany following relaxed lockdown conditions there is a serious warning.

I wouldn’t suggest that share pickers keep their wallets firmly fastened, however. There are plenty of FTSE 100 bargains out there which, from a long-term perspective are mighty attractive at current prices. Still, the threat of a painful and prolonged economic slowdown following the Covid-19 outbreak means that investors need to be extra careful.

A FTSE 100 trap?

One blue chip that I for one am very happy to walk past today is British Land Company (LSE: BLND). It’s a Footsie firm for whom annual profits drops have become a familiar thing. And City analysts don’t expect the retail property owner to break out of this tailspin. The City predicts bottom-line drops of 7% and 10% for the fiscal years to March 2020 and 2021 respectively.

These forecasts fail to underline the extent of the meltdown that physical retailers are facing, however. And consequently the colossal threat to British Land. According to the Confederation of British Industry (or CBI) a stunning 96% of retailers are experiencing cash flow problems following the coronavirus outbreak. And 31% of these companies are having difficulties accessing outside finance.

It’s hoped that the easing of lockdown measures will help large parts of the UK retail sector. Just when any such relaxation will come remains clear as mud, however. Besides, the imminent economic downturn – one which many commentators believe will be worse than the Great Depression almost a century ago – threatens to keep a sea of retailers in peril.

One to avoid

Expect, then, that British Land will continue struggling to collect rent from its tenants. Last month the FTSE 100 firm said it was releasing its smaller retail, food & beverage, and leisure tenants from paying rent between March and June. This would cost it £3m, it said. As well, the Footsie company is allowing its other clients to defer March quarter-day rents and spread repayment of this over the six quarters from September. It should be prepared for more waves of emergency action as the year rolls on and possibly into 2021, too.

British Land’s share price has rocketed more than 100p from the record closing lows of 313.8p per share punched at the top of April. I fear that this recent bounce is built on fragile foundations, however. Full-year financials are slated for 27 May, and I reckon that this could prove the catalyst for another share price crash. I’d avoid it at all costs despite its undemanding forward earnings multiple of around 14 times.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Happy parents playing with little kids riding in box
Investing Articles

2 FTSE 250 dividend growth stocks I’m considering for passive income

Paul Summers thinks the best dividend stocks to buy are those that consistently return more money to investors every year.

Read more »

Investing Articles

The Compass Group share price looks ready for growth after positive 2024 results

The Compass Group share price is up 4% today following positive full-year results. Our writer considers its prospects in 2025…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

How I plan to build an £86k yearly second income in the stock market

Is it realistic to aim for a substantial future second income by investing in high-quality shares? This writer firmly believes…

Read more »

Investing Articles

Here’s the Vodafone share price forecast up to 2027

Can anything stop the Vodafone share price slide? It's still early days for the company's turnaround plan, so we might…

Read more »

Investing Articles

Down 37%, here’s one of my favourite FTSE 100 bargain shares to consider

This FTSE 100 retailer's shares have collapsed in 2024. Despite tough trading conditions, is now the time to consider buying…

Read more »

Investing Articles

Which do I like best today, Nvidia or Tesla stock?

EV maker Tesla stock is on the up, while Nvidia growth is softening a bit. But they're both in the…

Read more »

Investing Articles

After jumping 15%, my favourite FTSE 250 stock looks set for the premier league

Games Workshop stock recently reached an all-time high, placing it within touching distance of promotion from the FTSE 250.

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

1 top growth stock on my Christmas buy list!

Ben McPoland reveals one top-notch growth stock down 29% that he plans to stuff into his portfolio in time for…

Read more »