There is plenty going on among FTSE 100 shares at the moment. The stock market bounced above 6,000 points last week, ending a stellar April. This was matched by several hundred points lost at the end of the week.
For investors, this presents some good opportunities, but also some warning signs on stocks to avoid.
Worth a punt
Flutter Entertainment (LSE: FLTR) is the company that houses well-known betting names such as Paddy Power and Betfair. If you look at the share price performance, the market believes the company has ridden out the virus well thus far. The share price is up 5.6% year-to-date, compared to the FTSE 100 average of −25%.
Should you invest £1,000 in Carnival right now?
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Recently, the stock has seen a boost from the confirmed merger with Stars Group. Stars Group is a Canadian gambling company, and the merger highlights Flutter’s desire to diversify via international expansion. In a recent trading update, Flutter showed that revenue from US operations grew by 72%, and from Australian operations grew by 32%.
This worldwide exposure should help the business going forward. Should gambling laws, taxes, advertising, or other aspects of business be changed negatively in one country, Flutter can lean on operations in another country to make up the shortfall. Further, even with global lockdowns still in place, increase in digital betting over recent years should ease pressure from closed physical locations. For me, this makes the firm a buy.
Too late to the carnival
Carnival (LSE: CCL) is a cruise liner operator in the FTSE 100. The firm has seen a large amount of news coverage this year due to the impact the virus has had on revenues. Unfortunately, a cruise ship is the last place anybody wanted to be due to the social distancing measures in place.
Even when lockdowns eventually get lifted, Carnival could struggle due to the target consumer. The firm targets the older audience, for high ticket trips over a relatively long period. This demographic is unlikely to provide the rebound in demand the firm needs to avoid financial hardship this year.
We have already seen the impact that the virus has had via the share price moves. Currently, the share price is down 72% this year alone. A recent report said the firm was bleeding $1bn per month. Even though Carnival managed to raise around $4bn in a recent bond issuance, it had to do so with an interest rate of 11.5%.
While it gets the cash in the short run, the interest/coupon payments at this rate are only going to hurt the firm in the longer term. In my opinion, these measures are like putting a small plaster on a large wound. For these reasons I would avoid investing in the share price.
My Foolish takeaway for FTSE 100 shares
Yes we are seeing unpredictable volatility at the moment, but this doesn’t have to be a bad thing. Firms such as Flutter Entertainment offer good value for investors, and a sound growth strategy which should last beyond the virus. Yet, not every business will do well in this period, so be sure to do your homework before investing.
