Over the past four weeks, shares in some of the most prominent FTSE 100 companies have seen their shares plunge.
It doesn’t look as if the pressure these businesses are under is going to end any time soon. In fact, for some FTSE 100 companies, it could get worse before it gets better.
FTSE 100 companies to avoid
Ashtead Group (LSE: AHT) is one of the best performing FTSE 100 stocks of the past decade. However, with the UK construction industry effectively shut down, this equipment hire business is almost certainly struggling.
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So far, management hasn’t updated the market on Ashtead’s performance over the past few weeks. That’s worrying. Most of its FTSE 100’s peers have provided some insight into how the coronavirus outbreak has hit operations.
On top of this, the stock is currently dealing at a price-to-earnings (P/E) ratio of 9, compared to the industry average of 8. This projection is based on old forecasts, which suggests it’s now out of date.
With that being the case, it looks as if Ashtead might be on track to announce a significant decline in earnings projections for 2020. If it does, there’s a good chance the stock could drop much further from current levels.
Rising debt
Carnival (LSE: CCL) is the worst-performing FTSE 100 stock this year. The shares have slumped more than 70% since the beginning of the year. It’s easy to see why. Carnival’s whole fleet of cruise ships has been suspended at the cost of $1bn per month.
The company is also facing a wave of lawsuits from angry customers around the world. To offset the pressure on its finances, Carnival has raised billions in debt.
This should help the business keep the lights on for a few months. But with no end in sight to the coronavirus shutdown at this stage, it’s not very easy to tell if the funding will be enough. With so much uncertainty surrounding Carnival’s outlook, it might be better for investors to stay away from the business for the time being.
Even though the shares might look cheap (the stock is dealing at a price-to-book (P/B) ratio of 0.2), if the former FTSE 100 dividend champion runs out of money, the stock could drop to zero.
Multiple mistakes
Utilities are supposed to be defensive investments. Unfortunately, Centrica (LSE: CNA) didn’t get the memo. The company has warned on profits in four of the last five years. Now it looks as if the business will also take a big hit from COVID-19.
While the owner of British Gas is in a better position than FTSE 100 companies like Carnival and Ashtead to weather the storm, its track record of failure is concerning. Management is planning further cost-cutting to offset falling demand for its services, but this could threaten Centrica’s already poor customer service record.
Management has also eliminated the group’s dividend for the time being. There’s no telling when the payout will be restored. Considering Centrica’s track record, there’s a good chance management may never be able to reinstate the payout at its previous level.
All of the above suggests it might be best to avoid Centrica. The company has been struggling for the past five years, and it’s highly unlikely the business will able to return to growth any time soon in the current environment.
