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FTSE 100 shares continue to buck the broader turbulence we’re seeing on the global stock market. I hold a large number of FTSE 100 stocks so, as you’d expect, I’m delighted to see the index holding firm.
Yet this broad-based rally has also propelled plenty of expensive, low-quality shares higher, leaving them vulnerable to a sudden sell-off.
With this in mind, here are three Footsie horror shares I’m avoiding this Friday the 13th.
Looking pricey
At 216.6p, the BT (LSE:BT.A) share price is up 11% over the last month. That takes gains on a 12-month horizon to 20%. In my view, this leaves the telecoms play in danger of a sharp correction.
Investors have been encouraged by early progress in its modernisation plan to cut costs and move away from lower-margin legacy products. But does this merit the premium BT shares currently command? I’m unconvinced.
Today, its price-to-earnings (P/E) ratio is 15.3. That’s miles above the 10-year average of 8-9.
Given the multiple challenges BT faces — from falling consumer and business revenues and rising regulation, to high costs and rising net debt (£21bn worth right now) — a sharp price reversal is a big risk.
Going up in smoke?
Like BT, British American Tobacco (LSE:BATS) shares are also on the front foot. A share price spurt over the last month to £43.06 today takes gains over the past year to 8%.
And like the telecoms firm, it also now carries a princely valuation. Its P/E is 13.8, just above the broader average for FTSE 100 shares.
In my view, British American’s multiple should be lower given the huge structural risks it faces. In its half-year update, it said the global cigarette market had contracted more than expected (down 2.5% versus the predicted 2%), pulling its share price lower.
Collapsing cigarette sales aren’t my only concern. I’m also fearful the firm’s next-generation products like Vuse e-cigarettes could be subject to the same regulatory constraints that are crushing sales of its traditional wares. The Footsie firm’s heavyweight brands could help it gain share in a declining market. But I’m still not buying.
Cheap… but risky
My final FTSE 100 horror share I’m avoiding today is BP (LSE:BP.). I see the potential for more near-term share price gains if the Iran war flares up again, driving energy prices skywards.
BP’s share price has soared 20% over the last year on the back of such support, to 567p. And with a P/E ratio of just 6, this oil stock has plenty of scope to rise in this scenario.
Yet a sharp drop also isn’t out of the equation if, instead, peace endures in the Middle East and oil prices decline. Right now it’s tough to predict exactly what will happen. Still, what’s putting me off is my long-term view on BP, and how its profits and dividends will be impacted by the green energy transition.
With aggressive asset sales also undermining its growth prospects, BP’s another high-risk FTSE share I won’t touch with a bargepole today.
Should you invest £5,000 in British American Tobacco P.l.c. right now?
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Royston Wild does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
