FTSE 100 stocks are a popular destination for many UK investors. After all, these established businesses often act as a safe haven against the fluctuating volatility of the markets, which seems particularly elevated recently.
In the last week, shares of Lloyds Banking Group (LSE:LLOY) and Glencore (LSE:GLEN) are the two most bought stocks, according to Hargreaves Lansdown. Why are they suddenly so popular? And should I be considering them for my portfolio as well?
The most popular of the FTSE 100 stocks is Lloyds
The sudden surge in popularity surrounding Lloyds shares isn’t much of a mystery. For years, it and other banks have struggled to generate a sizeable profit margin on lending activities. Why? Because interest rates have been so low. Now with inflation on the rise, the Bank of England has announced plans to push rates back up.
This may be horrible news for consumers, but it’s a dream come true for Lloyds. With profits expected to rise considerably and pandemic-related loan impairments seemingly a thing of the past, I’m not surprised that it’s one of the most popular FTSE 100 stocks to buy right now.
But even though the shares are up over 30% in the last 12 months, the group still has its risks. If Covid-19 decides to mutate again and restrictions are reintroduced, then these gains could just as quickly disappear. But this is ultimately a short-term issue. And with tailwinds on the horizon, I’m considering adding this stock to my personal portfolio.
Demand for metals is surging
Following on with the theme of inflation, I’m also not surprised to see Glencore take second place in the popularity contest. Mining is a primarily fixed-cost operation. So, when raw materials like metals start to increase in price, these gains translate almost entirely into profit for mining businesses.
Rising prices are further amplified by surging demand from the automotive sector, especially for renewable energy metals like cobalt, copper, and nickel. And Glencore mines all three.
Looking at its latest results, revenues jumped 43% in 2021, and underlying profits by 228%! Needless to say, as FTSE 100 stocks go, that’s an exceptional level of growth. And based on analyst forecasts, it’s expected to continue well into 2022.
While that certainly explains the sudden surge in popularity, there are some risks to consider. First and foremost, the surging commodity prices haven’t gone unnoticed by the competition. Investments in the discovery and development of new mining sites are on the rise as companies seek to capitalise on the favourable environment. Eventually, the supply will meet the demand. And when that happens, prices will naturally start to decline.
That will obviously be bad news for Glencore and its share price. However, I’m still tempted to add this business to my portfolio. Why? Because demand for battery metals isn’t exactly going to disappear any time soon, especially with the Western world beginning its transition to electric vehicles and renewable energy technologies.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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