The FTSE 100 has had an unremarkable year in 2023, trailing the S&P 500 by some margin. But the performance of the index was very uneven, with Rolls-Royce doing well and Anglo-American struggling.
Looking ahead to 2024, I’m expecting more mixed fortunes for FTSE 100 stocks. There are some that I’m looking to buy and others that I’d rather stay well away from.
Buy: Experian
Experian (LSE:EXPN) has been one of the better performers of 2023. But it didn’t always look like it was going to be that way – in November, the stock was 15% below its price at the beginning of the year.
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The stock started to look up quite sharply as news of a potential interest rate cut started to come from central banks in the UK and the US. If that materialises in 2024, the business stands to benefit.
With mortgage rates starting to come back down, there’s a chance things could look up for Experian sooner rather than later. And if that continues through 2024, I think the stock could do well.
The risk with the stock is that it’s expensive. Its price-to-earnings (P/E) ratio is artificially inflated by weak 2023 earnings, but even against 2022’s bumper results, the stock still doesn’t look cheap.
In my view, though, Experian is one of the highest-quality businesses on the FTSE 100. It has relatively little competition, a product that is indispensable to its customers, and a strong balance sheet.
Combine that with a potential tailwind from falling interest rates and I think investors could have a winning combination. That’s why I’m looking to buy the stock in 2024.
Avoid: Vodafone
Vodafone (LSE:VOD), on the other hand, is a stock I’m staying well away from. It trades at a low P/E ratio and has a big dividend yield, but even this isn’t enough to convince me to think about buying it.
Unlike Experian, Vodafone operates in a business that is highly capital intensive. It has expensive infrastructure to maintain and inflation has been a big issue with this.
As well as being capital intensive, the telecoms industry has competitors that price aggressively. This makes it difficult for any of them to generate decent returns.
It’s not all bad news for the business, by any means. The company is attempting to slim down its operations to try and improve its margins, which looks like a good move.
Furthermore, there’s the possibility of a merger with Three UK. If this goes through, then the company might manage to achieve the kind of scale that would give it a genuine advantage over its rivals.
Things might work out for Vodafone shareholders from here and I hope they do. But the risks look significant to me and I think there are better investment opportunites from the FTSE 100 right now.
