Which FTSE 100 stocks would be which countries if the index was the World Cup? I have some ideas.
This sounds like some light relief, but there is a serious point. Read on to the end to see what it is.
The FTSE 100 World Cup
I think the similarities between some of the teams at the World Cup at the moment and the stocks in the FTSE 100 are actually quite striking. Here are some ideas:
Lloyds Banking Group
As I write this, Mexico have played two games and won them both. But tougher challenges than South Africa and South Korea are surely on the way.
Likewise, Lloyds Banking Group has been soaring recently with strong growth and increased guidance in its Q1 report. Watch out, however, when the interest rate cycle gets tougher.
Tesco
It’s hard to make much of a case against Germany, and I think it’s difficult to argue with their overall quality. Possibly the team I’d back defending a 1-0 lead over anyone else.
Likewise, nobody writes thrillers about Tesco. But it doesn’t have an obvious weakness and its scale means it’s a high-quality business.
Diageo
Huge amounts of pedigree and heritage, but nobody much seems to fancy them at the moment. They’re surely too good to write off permanently… aren’t they?
That could be either Diageo or Brazil. With the drinks company, I’m watching for the new manager’s tactical reveal in August.
Rightmove
Italy didn’t even qualify for the tournament (again) so it’s sort of cheating. But I think Rightmove is in real danger of getting dropped into the FTSE 250.
In both cases, though, they’re something of an anomaly. There are lower-quality operations with a seat at the table, so investors might well look for signs of a return to glory.
Which country is Rolls-Royce?
I have Argentina as this tournament’s Rolls-Royce (LSE:RR). I can see some legitimate strengths and both the team and the stock have some real momentum.
Argentina have a strong squad and Messi somehow just seems to get better and better. That, however, won’t last forever.
Some of Rolls-Royce’s recent succes is also clearly cyclical — civil aviation recovering from a pandemic-shaped hole isn’t a skill, it’s a tide. But not all of it.
Margins on long-term service agreement have structurally improved. And the £7bn-£9bn multi-year buyback signals genuine balance sheet repair rather than a one-off bounce.
In the same way, there’s never a bad Argentina team. And I think they’ll be a force in future tournaments as well.
At roughly 40 times earnings Rolls-Royce shares are pricing in a lot of continued excellence. So I’m not buying the stock at today’s prices, but I’m not betting the other way either.
Conclusion
Cape Verde held Spain to a goal-less draw the other day. Nobody saw that coming.
That happens with stocks as well. One profit warning or a single good update can send a stock up or down 10%.
I wouldn’t, however, restructure my World Cup predictions around one group-stage shock. And the same goes for my investments.
Over a tournament – or a decade – quality tends to show through. That’s why I’m focused on the long term, instead of chasing stocks that are doing well in a particular cycle.
Should you invest £5,000 in Rolls-Royce Plc right now?
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Stephen Wright owns shares in Diageo.
