Global markets surged this week as fears of an impending US recession were quashed. With the risk atmosphere now feeling significantly calmer, I’m revisiting some FTSE 100 stocks I’ve been hesitant to buy.
GSK
I’ve been hemming and hawing about buying GSK (LSE: GSK) for so long now it’s become an internal joke with myself. I’ll probably be in the 50-59 age bracket that its Arexvy vaccine was recently approved for before I finally buy!
It’s one of the few FTSE 100 mega-caps that have managed to elude my profile thus far. But its recent Q2 results placed it firmly back in my crosshairs.
A 31 July report revealed sales up 13%, a 5.2% improvement on analysts expectations. Subsequently, core operating profit rose 18% with earnings per share (EPS) up 13%. Future return on equity (ROE) is now forecast to be 39% in three years.
A promising option — but one pressing concern could derail the progress.
GSK’s Zantac drug remains the target of several thousand US lawsuits alleging a link to cancer. Despite one Illinois jury ruling the drug not responsible in a specific case, remaining trials in other states could drag on for years. Should it be found responsible, compensation payouts could cost the company dearly in the short term.
Still, I think it’ll make a good long-term investment in my portfolio. So I plan to finally buy the stock next week.
Entain
On the other end of the scale is Entain (LSE: ENT), one of the smallest-cap stocks on the index. It hasn’t been on my radar as long as GSK but caught my attention during the recent Euros football tournament. As the parent company of Ladbrokes, it’s no surprise the increased betting activity boosted its revenue.
It also recently posted interim results for the first half of the year, with stronger-than-expected win margins for the Euros. Revenues rose 6% with underlying cash profit (EBITDA) up 5%. The share price rose 9% on the day of the announcement.
The sports betting and gambling company has had a tough few years. Since September 2021, the shares are down over 70%. A swathe of acquisitions made under ex-CEO Jette Nygaard-Andersen didn’t help its fortunes and left the firm with £3.7bn in debt. Inflation-weary consumers with tight wallets probably added to the woes.
Now on the mend, could the company be on track to benefit from a bolstered economy? The looming threat of a recession has certainly had me shy away from excessive spending this year. If we really are in the clear, a few small wagers couldn’t hurt, right?
However, recession or not, Entain still faces challenges. Falling profits mean it recently became unprofitable, with negative earnings per share (EPS). Despite this, it was confident enough to raise Q2 dividends to 9.3p from 8.9p. If that bet doesn’t pay off, it may have to cut them again — a bad look.
Moreover, the company is still looking for a new permanent CEO – which gives me pause.
Although this low price point is attractive, I’ll wait until management is more stabilised before deciding whether to buy the shares.
The post These are my top FTSE 100 picks as recession fears fade appeared first on The Motley Fool UK.
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Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended GSK. 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.
