Why have some FTSE 100 stocks risen more than others? Here are 2 picks I like!
When searching for FTSE 100 stocks to add to my portfolio, I wanted to know which stocks have gained the most in terms of share price over the past year and why. I have identified two stocks I like from the UK’s premier index. Should I consider adding shares to my portfolio?
FTSE 100 overview
As I write, the FTSE 100 index stands at 7,064. Six months ago, it stood at 7,019 and at this time last year, it stood at 5,978. I believe the increase over the 12-month period can be explained by the reopening of the economy after the pandemic brought everything to a halt. In recent months, the FTSE 100 has seen some volatility, caused by low economic growth prospects and rising costs.
I believe one of the biggest benefits of the FTSE 100 is the global and diverse nature of businesses on the it. It offers exposure to sectors ranging from mining and energy to banking and pharmaceuticals and much more. Earnings for some of the largest companies are primarily derived from outside the UK itself.
Although I am more familiar with the FTSE 100, I do often try and compare it to other prominent markets. For example, I found that UK equities typically trade at lower price-to-earnings (P/E) multiples compared to US-listed businesses. I believe this is mainly due to the dominance of higher-growth technology firms in the US. Due to factors such as Brexit and the handling of the pandemic, that gap has widened. This suggest to me that UK shares are available at comparatively cheaper prices.
Reasons for the biggest gains
Before I identify a couple of the FTSE 100’s biggest gainers that I like, I want to understand some of the potential reasons for their share prices increases over the past six and 12 months.
Pandemic boost. Some firms benefited from the pandemic. For example, Royal Mail saw a surge in deliveries due to massive growth in online shopping. This bump in customer numbers helped financials as well as raise investor sentiment too. Another example is home improvement group Kingfisher. With many consumers unable to go on holiday or nights out, many turned to DIY and home improvement. Consumers had surplus money and time and decided to decorate or undertake other projects.
Cyclicals. Some of the biggest FTSE 100 risers in the past six months have been in cyclical sectors such as mining, construction, financial, and telecoms. These sectors were always expected to benefit from the pandemic, especially as the vaccine rollout continued and the economy reopened with pent-up demand.
Materials. The pandemic did not affect momentum in material stocks as commodities prices have soared over the past 18 months or so. This was due to increased demand during the pandemic period. Investors rushed to commodities when the market crashed and away from other stocks and forms of investments. For example, miners Glencore and Evraz are two of the best performers in terms of share price rise in the past six months.
FTSE 100 gaming giant
Gaming giant Entain (LSE:ENT) is one of the premier sports-betting and gaming firms in the world. It operates in over 20 countries worldwide and has online and retail operations. Its brands include bwin, Coral, and Ladbrokes to mention a few.
As I write, shares are trading for 2,124p per share. Six months ago shares were trading for 1,580p, which is a 34% increase in that period. This time last year, shares were trading for 1,050p per share, which is a 100% return.
The pandemic saw many consumers looking for new pastimes and entertainment. Betting and gaming firms experienced a spike in users, which boosted balance sheets and investor sentiment.
There are a few reasons I like Entain. Firstly, it has a good track record of performance and growing organically year on year too. I understand past performance is not a guarantee of the future but I use it as a good gauge nevertheless. Next, it shrewdly acquires businesses that are competitors or disruptors to enhance its own profile, offering, and footprint globally. Finally, its growth prospects are positive. For example, US betting rules are being relaxed by its government and this is a key growth area for Entain.
Entain does have its risks, however. Firstly, gambling and gaming rules can change quickly as there is a lot of regulation involved. This could affect operations and finances. Next, competition is rife in this sector and everyone is one the lookout for a competitive edge. Right now, I would add Entain shares to my portfolio. I believe its growth trajectory could continue, therefore offering me a potential lucrative return on my investment down the road.
FTSE 100 incumbent Ashtead (LSE:AHT) is another pick I like. Ashtead is an international construction equipment rental firm with a presence in the UK, US, and Canada. With over 800,000 customers, it is a powerhouse in its sector. In the construction industry, renting is often more cost effective than buying.
As I write, Ashtead shares are trading for 5,586p per share. Six months ago shares were trading for 4,517p per share which is a 23% increase. This time last year, shares were trading for 2,963p per share which is a return of close to 90% which is impressive.
I like Ashtead for similar reasons to Entain. As well as its growth in share price, there are the same fundamental reasons. Firstly, the FTSE 100 incumbent’s track record is favourable in the past and more recently. Recent Q1 results posted last month showed huge demand for construction equipment that shows no signs of slowing. This boosted performance. Next, it has a solid balance sheet and uses its cash well. In the Q1 report, it mentioned it spent $551m of capital investing in the business. Of this, $123m was on acquisitions to enhance its offering and footprint. As a potential investor, this is exciting to see.
Ashtead does have risks too. Firstly, I found it is very dependent on its US revenue stream. The US does have ambitious growth and infrastructure plans for the future but things aren’t progressing as quickly as originally thought. If things were to slow further or even stop, Ashtead could see its financials affected. Next, I must consider that the Covid-19 virus has not disappeared. The pandemic did impact Ashtead’s financials at the beginning and if any new variants or restrictions were to come into force, that could impact it once more.
Right now I would happily add Ashtead shares to my portfolio. I believe in the long term it will continue to grow as a company and as an investor I could see a nice return.