“No sooner had the FTSE 100 hit a new record closing level, the blue-chip index has now scored another goal by achieving a new intraday high at 8,075. This positive showing is exactly what’s needed to help repair the reputation of the UK stock market. It’s going to be a slow process but every little helps,” says Russ Mould, investment director at AJ Bell.
“The UK has lived in the shadows of the US stock market for the past decade or more, delivering inferior returns on a relative basis as it has lacked the go-go growth stocks highly desired by investors. The FTSE’s low exposure to the technology sector has diminished the index’s appeal and seen investors look elsewhere for ways to turbocharge their portfolio.
“Brexit and political uncertainty have also weighed on the index, even though approximately three quarters of its constituents earn money overseas. That’s led to cheap valuations and a mountain of unloved stocks. Investors are finally getting the message that a good chunk of these businesses still have a lot to offer, delivering slow but steady profit growth, and they’re available for a fraction of the price of some of their overseas peers.
“The conveyor belt of takeovers continues to trundle along and that has put the spotlight on the market. At the same time, many UK-listed companies are simply getting on with the job at hand, delivering earnings and dividend growth. Investors who take a long-term view are still able to find plenty of opportunities.
“UK returns may often lag what’s on offer in North America but a diversified investment portfolio shouldn’t rely on one geographic region for its gains as even winning markets like the US can go down as well as up. If you look back at history, there are times when the UK has either held firm when the US market has fallen or even pushed ahead.
“The Magnificent Seven kick off their earnings season with results tonight from Tesla and the market is already bracing itself for a bad quarterly update from Elon Musk’s electric empire. If further cracks appear in this group of tech-related market giants, it’s feasible to suggest that investors could fish for opportunities elsewhere and perhaps for once, the UK might get more of a look given the records it has notched up this week.
“What’s catching investors’ attention today as the FTSE sets new records? Almost everything apart from mining stocks. Primark-owner Associated British Foods delivered a storming update which has sent its shares soaring, while investors were also piling into JD Sports as it expands in the US, and Ocado following weekend reports that shareholders want it to list in the States. The index was also being driven by some of the London Stock Exchange’s biggest and best-known names including British American Tobacco and AstraZeneca.”
Associated British Foods
“After a strong trading update in January, Primark-owner Associated British Foods has built on this momentum with its first-half results.
“It delivered an impressive set of numbers with strength across all areas of the business, including the less-heralded food and ingredients arm. The performance of Primark was particularly stunning, suggesting its value offering in clothing is resonating with cost-conscious consumers.
“The company seems to have found a middle ground between its disposable ‘Primarni’ past to providing better quality apparel, still at affordable prices, including in categories like children’s clothes where parents need to regularly update items as their offspring grow. The company’s outperformance of a flatlining UK retail sector suggests it is taking market share from less robust rivals.
“Primark’s lack of a full transactional online presence may have held it back during the pandemic but compare its own fortunes now with the likes of Boohoo and ASOS and its decision to limit itself to click and collect sales looks prudent. Selling clothes online and dealing with returns brings extra layers of cost and complexity.
“The company’s strong balance sheet and diversified model which the Weston family, with its controlling stake in the business, are committed to, put the company in an enviable position to both reward shareholders and invest in further expansion in the business.”
JD Sports
“Investors were excited about JD Sports’ acquisition of US firm Hibbett – a deal which builds on its existing presence across the Atlantic.
“UK retailers haven’t always fared too well in the States but JD’s 2018 acquisition of Finish Line has proved a rare success story as the company leveraged the experience of the latter’s US management and built on this success with a further deal for Shoe Palace a few year later.
“This latest deal is for an established brand which dates back to the 1940s and has good relationships with other leading sportswear brands as well as operating from prime locations.
“Time will tell if this was the right use of capital over and above further returns to shareholders or buying back stock after a difficult period for the share price.
“JD faces the same challenges in the US, which looks set to be 40% of the business if this deal goes through, as it does in the UK. Namely shifting customer appetites, pressures on their ability to spend hundreds of pounds on must-have trainers and the impact of sportswear giants like Nike and Adidas pursuing a direct-to-consumer led strategy.”
These articles are for information purposes only and are not a personal recommendation or advice.
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