We’re not quite halfway through the year, but two FTSE 100 stocks have already more than doubled!
They’re Fresnillo (LSE: FRES) and Babcock International (LSE: BAB), which are up 127% and 112%, respectively, year to date.
For context, the FTSE 100 is up around 7.4%. So these have delivered stonking outperformance.
Unfortunately, I don’t own either of them. Should I buy one or both for my ISA? Here’s my take.
Surging defence spending
I’m more relaxed about Babcock’s gain as I hold defence peers BAE Systems and Rolls-Royce. Those two are up 67% and 55% year to date, making them the third- and fifth-best-performing Footsie stocks. So I don’t feel left behind by the defence sector rally.
Naturally, Babcock stock has been boosted by rising UK and NATO military budgets. In the year to 31 March, revenue grew 11% at constant currency to £4.83bn, with strong growth in its Marine and Nuclear divisions.
Underlying operating profit jumped 17% to £363m, and investors are expecting more to come as the group’s contracted backlog rose to £10.1bn.
Babcock’s Marine unit designs, builds, and maintains warships and submarines, while Nuclear handles engineering support for the UK’s entire nuclear submarine fleet. The government’s pledge to spend more on the latter should directly benefit the company.
Risks here, though, include delays or cost overruns on major contracts, which could hit margins and cause reputational damage.
Stepping back, I’m happy with my defence exposure. However, Babcock shares don’t look grossly overvalued, even after their massive bull run. The forward price-to-earnings (P/E) ratio is 20, which is less than many European defence stocks (though the dividend yield is only 0.5%).
This red-hot FTSE 100 stock could still be worth a look, in my opinion.
By contrast, I have almost no gold exposure in my portfolio, aside from one mining investment trust.
But I was braced for major volatility after Donald Trump re-entered the White House, with inflation from tariffs and geopolitical uncertainty seeming very likely to me.
In hindsight, I should have allocated some capital to gold. The yellow metal has climbed by approximately 27% since November, with many gold stocks surging much higher.
Silver has been marching upwards too, recently hitting a 14-year high.
Fresnillo is the world’s leading silver producer and one of the largest gold producers in Mexico, where it has eight mines. In Q1, silver production fell nearly 10% to 12.4m ounces, while gold output dropped 23.5%.
Despite these quarterly dips, Fresnillo reaffirmed its full-year guidance of 49m-56m ounces of silver and 525k-580k ounces of gold. Earnings are expected to rocket, putting the stock on a forward-looking P/E ratio of 17.5.
That could be attractive, assuming the prices of gold and silver continue to rise. That’s not guaranteed, of course, while technical issues and declining ore grades can hit output and profitability.
Longer term though, I’m bullish on both gold and silver. The latter has various industrial applications (electronics and green tech, for example). Indeed, there appears to be a structural supply deficit, which should support the silver price over time.
Those who think similarly might want to consider Fresnillo stock. However, I’m going to stick with the FTSE 250‘s BlackRock World Mining Trust due to the global diversification it offers my portfolio.
This story originally appeared on Motley Fool
