So far it has not been a bad year for the FTSE 100. Well, not bad by comparison to the other major indexes of the world. While the FTSE 100’s 2.24% increase since the opening of trading on 4 January 2022 seems mediocre, at least it’s not the dismal -15.5% or -10.25% the NASDAQ and S&P 500 have experienced in the same period. Closer to home, the EURO STOXX 50 is down almost 6% since the beginning of the year.
The FTSE 100’s top three so far this year have a good deal to do with the index remaining on the positive side of 0%. Here they are in all their share price appreciation glory.
Wars and rumours of wars
In third place on the FTSE 100 is Shell Plc (LSE: SHEL), with 21% share price appreciation in 2022 so far. Yesterday, news broke that Russia has officially moved into Ukraine. Both Ukraine and Russia are critical to Europe’s energy supply chain. With rumours of the conflict milling around since late last year, the key question, naturally, was what effect this would have on energy prices.
The likely response to Russian-aimed sanctions by the West will be that Russia may cut off gas to Europe (at least in part) and energy prices will naturally go up as a result. Shell could benefit financially, but for me the danger of buying this stock is that it will likely experience massive volatility in the months and (maybe even) years to come.
Dial-a-dividend
Vodafone (LSE: VOD) is next up, having appreciated 21.5% this year. To be completely honest, I cannot see why. From a valuation perspective, it is quite cheap with a price-to-book ratio of just 0.8. It also pays a very impressive 5.4% dividend. But apart from that, there’s very little in the way of substantive reason for this FTSE 100 stock to be performing well.
Vodafone is saddled with debt — £97bn worth of it to be exact. That chunky dividend I mentioned earlier is not covered by earnings, as the company is essentially unprofitable. It just barely netted a profit in 2021 and made losses in four of the five years before that. The advent of 5G presents a massive opportunity for telecommunications companies. It is, however, doubtful to what extent Vodafone can capitalise on this given its current state. I will be steering clear.
Cashing in on rate hikes
Right at the top of the FTSE 100 heap, we find Standard Chartered Plc (LSE: STAN). It’s an unlikely leader because banking stocks haven’t exactly been trendy lately. However, with 29.5% share price appreciation this year, this banking stock is soaring. In recent years investors have been clamouring for more growth. The necessary interest rate hikes on the horizon may be just what this bank needs.
Standard Chartered was among the worst-performing banking stocks in 2021. However, the stock has shot up significantly this year as investors anticipate rate hikes both in the UK and other economies. Interest rates could peak at 7.25% this year, which would be great for both Standard Chartered and UK banks in general. The danger is that decreased borrowing could mean fewer consumer borrowers. I will be buying this stock though as I believe the increased spread will mean stronger earnings.
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Stephen Bhasera has no position in any of the shares mentioned. The Motley Fool UK has recommended Standard Chartered and Vodafone. 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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