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Despite rising more than 22% in just two years, the FTSE 100 still offers a lot of value. It’s arguably a lot easier to find opportunities here than in the top 100 firms of the S&P 500.
Having said that, there are a handful of Footsie shares that I’m keen to avoid. Here are two of them.
WPP
Let’s start with the worst-performing FTSE 100 stock this year (by some distance). That’s WPP (LSE:WPP), which is down 56.2%.
Since February 2017, the stock has lost a whopping 80% of its market value!
Indeed, if it carries on falling, it may even be relegated to the FTSE 250. That would be some fall from grace for what used to be the world’s largest advertising group.
The company is suffering from weak client spending and the loss of some high-profile contracts. Major restructuring efforts are weighing on profitability, with H1 operating profit falling 48% to £221m. The interim dividend was also cut by 50%.
However, there’s a new CEO, and she might be able to forge a path forward. In its interim results, the firm namedropped the likes of Electronic Arts, Hisense, L’Oréal, Samsung, IKEA, and Heineken. These are blue-chip heavyweights, and WPP has deep experience working with such names.
And while we have no real clue about near-term profits, the stock looks dirt cheap at just 5.5 times this year’s forecast earnings. So, I can see why some hedge funds have been scooping up this FTSE 100 stock in recent months.
All that said, AI will probably automate or accelerate more tasks that WPP previously charged for, such as basic creative production. Over time, this might put intense downward pressure on client fees.
In this scenario, a reduction in client spending might become structural rather than cyclical. And that would be a big challenge.
Perhaps I’m overstating this AI risk. And maybe the firm’s AI-powered WPP Open platform stands to benefit from the proliferation of cheap AI tools. But due to this uncertainty in my mind, I’m not keen to invest.
Haleon
The second stock is Haleon (LSE:HLN), the consumer healthcare company that was spun off from GSK in July 2022.
The share price is down 16% in the past year, but broadly flat since listing.
Now, there’s not much threat to the business model here. Haleon owns many well-known brands like Sensodyne, Panadol, and Advil. AI might disrupt many things, but not toothpaste or painkillers.
Meanwhile, the earnings outlook appears promising. Next year, earnings per share are forecast to jump nearly 10%, along with the dividend (around 12%). So this is much more of a steady-Eddy, defensive stock.
My problem here is that the dividend yield is just 2%. Based on forecasts for 2026, this only rises to 2.6%. I would want more income from this type of share, given the moderate level of growth expected from the mature industry in which Haleon operates.
Again, I think the stock could add defensive qualities to a portfolio. However, with a couple of decades left till retirement, I’d rather go on the offensive with the shares I buy.
