REVIEW OF FTSE 100 STOCKS

13th February 2023

The recent technical analysis of the FTSE 100 component stocks found that 43 stocks had bullish charts, and 45 stocks had bearish charts. Some companies were taken over since our first review in 2019, hence the total number now reviewed is slightly below 100.

The existing FTSE 100 stocks on our recommended list are:- 3i Group, Anglo American, Intercontinental Hotels Group (IHG) and SSE.

 

All of these stocks continue to have bullish charts. Indeed, IHG and SSE have very bullish charts.

Four stocks were found to have very bullish charts:- IHG, SSE, Burberry and Glencore.

Glencore is a mining company, similar to Anglo American, and as the latter is already on the recommended list, we will omit it as the mining sector is already represented.

That leaves Burberry as the one new recommendation, and a review of the fundamentals supports the bullish outlook per the chart.

Burberry designs and distributes ready-to-wear luxury clothing such as trench costs, leather accessories such as hand bags, and footwear. The luxury sector has demonstrated considerable resilience in previous downturns, as recessions have less of an impact on the spending power of wealthy customers. The chart shows that the stock bounced back relatively quickly from the downturns of the past twenty years - the 2001/2002 dotcom crash, 2008 financial crash, 2020 covid crisis and the 2022 Ukraine war. That is the hallmark of a quality stock.
 

The P/E ratio (based on trailing twelve months earnings) is a reasonable 22, when one considers that earnings in the important Chinese market were adversely affected by the draconian lock down measures taken there. The dividend yield is 2.18%, and the company has a policy of paying out 50% of earnings in dividends. China will eventually bounce back, and luxury brands are an excellent way of gaining exposure to future growth in that market.
 

The stock has rallied strongly in the past three months, but the stock still appears to be cheap compared to other luxury stocks, most of which have higher P/Es and lower dividend yields. Christian Dior, Montcler, Prada and Hermes are trading on P/Es (based on tailing twelve months earnings) of 25, 27, 42 and 61 respectively. The dividend yields are 1.5%, 1%, 1.2% and 0.5% respectively.
 

Burberry has good profit margins and a strong balance sheet. The net profit margin is currently at 15%, with sales of £2.96 billion and earnings after tax of £440 million in the past twelve months. The company has mostly completed a £400 million buy back of shares, and most of these shares have now been cancelled. The buy back indicates that the company had surplus cash, and is now a mature company with no significant requirement for investment in expansion, or plans to make large (and risky) acquisitions.
 

That is not surprising, given the enormous growth rate that Burberry enjoyed in the past twenty years, reflected in a share price which has risen by ten times in that period of time. While it is unlikely to be a 'ten-bagger' in the next twenty years, it should prove to be a quality stock generating a reliable dividend, with the protection inherent in being a major brand.
 

7.5% of its retail turnover are now e-commerce sales, and the company aims to double this "in the medium term" per the last set of interim results. Some stores are owned, but most are leased, and there are also some franchise stores. Therefore, it has a variety of sales channels. It is very active in both social media and traditional media, in promoting the brand. The new CEO who was appointed in March 2022, has spent his entire career in the luxury sector, and previously worked at Gianni Versace, Alexander McQueen and Harrods.
 

Burberry will announce full year results for the year ended 31st March 2023, on 18th May 2023. Results for the third quarter were announced in mid January 2023, and these indicated that the outlook continues to be positive.
 

The fashion industry is of course fickle, but the big brands have shown their resilience and adaptability in the past. The new CEO has embarked on a program for refurbishment of the stores, along with emphasising the identity of the brand, and the early results have been encouraging. The fundamentals of the stock, support the bullish outlook presented by the share price chart, and Burberry is therefore added to our FTSE 100 recommendations.