These 2 FTSE 100 stocks have thrashed the market but are they too expensive now?

These two FTSE 100 stocks have delivered rip-roaring growth in recent years but are they now too expensive for me to buy as a result?

| 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.

While many FTSE 100 stocks have struggled lately, these two growth monsters have been busy making investors rich. Mining giant Antofagasta (LSE: ANTO) and plumbing and heating products distributor Ferguson (LSE: FERG) have grown an astonishing 168% and 64% respectively over the past 12 months.

This isn’t just a Covid-19 quirk. Measured over five years they are up 238% and 136% respectively. Both published results today, and both reported a further jump in profits. I think Antofagasta and Ferguson are two of the most exciting stocks on the FTSE 100, but as ever in life there is a catch.

You can probably guess what it is, too. After such barnstorming growth, these FTSE 100 stocks are looking a little expensive. So would I buy them today?

Both shares are recovery plays

Underlying full-year profits at Chile-focused copper miner Antofagasta jumped 12.3% last year to $5.12bn, on revenue growth of 3.3%. Sales volume fell, but copper and gold prices compensated by rising around 25%. Profits were further boosted by “the weaker Chilean peso, lower input costs and continued tight cost control”, management said. EBITDA margins increased from 49.1% in 2019 to 53.4%.

Antofagasta’s 2020 dividend totalled to 54.7 cents, up 22% on last year, easily beating analyst expectations. The 1.7% forward yield may look low compared to some FTSE 100 mining stocks, but it is covered 2.8 times earnings. Naturally, with all that share price growth, dividends have struggled to keep pace.

As with any metals or minerals commodity producer, Antofagasta relies on a booming economy to support demand. Many investors have been buying in anticipation of a strong post-pandemic recovery. Currently, it trades at 44 times earnings, but with a forward valuation of just 22 times. If the recovery disappoints, Antofagasta’s share price could go into reverse. 

I’m relatively optimistic about the wider recovery, but I think the Antofagasta share price has raced ahead of many FTSE 100 stocks, and I might watch and wait for now.

Ferguson, formerly known as Wolseley, is also benefiting from recovery hopes, particularly in the US, where the company mostly operates. 

These FTSE 100 stocks are flying

The group posted a 12.2% rise in underlying half-year trading profit. Revenue rose 4.2%, despite one fewer trading day. Management put this down to “excellent cost control”It also hailed “good operating cash generation and [a] very strong balance sheet”. Ferguson still has an eye on growth, investing $224m in four first-half acquisitions. However, management dampened expectations by flagging up a “very uncertain” second-half outlook, amid supply chain pressures.

It also warned of “increasing supply chain pressures, transportation costs and the reversal of temporary cost reduction actions” during the first lockdown. So there are potential setbacks here, which could hit the share price hard because it is also expensive, trading at 21.8 times forward earnings.

Ferguson’s forward yield is 1.8%, covered 2.6 times. As with Antofagasta, rapid share price growth makes its dividends look less generous than they really are. This is still a top FTSE 100 income stock. Ferguson also treated shareholders to a $400m buyback, following the sale of Wolseley UK.

I like both FTSE 100 stocks, but marginally favour Ferguson. US President Biden’s $1.9trn stimulus splurge should give it a lift, along with the rest of the US economy. Let’s just hope that recovery arrives soon.

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

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

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »