Susannah Streeter, head of money and markets at Hargreaves Lansdown has compiled a list of the top 5 best performing FTSE 100 stocks of 2024. In terms of total return, including dividends, the best performers are:
- NatWest: +101% (share price +88%)
- Rolls-Royce: +94% (share price +90%)
- DS Smith: +84% (share price +78%)
- IAG: +83% (share price +81%)
- Barclays: +81% (share price +73%)
(data as of 11th December)
‘’As conditions for UK banks look more promising, investors have reacted by snapping up shares in big lenders, pushing NatWest and Barclays into the top 5 best performing stocks in the FTSE 100″, noted Streeter. “The impressive turnaround engineered at Rolls Royce has propelled its share price higher this year despite having to navigate supply chain interest.”
“The proposed merger of DS Smith with US heavyweight International Paper Company saw a spike in its share price, in addition to a decent set of half year results amid challenging conditions. As pent-up demand for travel has continued and consumers have ring fenced spending for trips and it’s been a recipe for success for British Airways owner International Consolidated Airlines group, helping it clinch a spot in the top 5.”
Outside of this list but with a performance worthy of note, “the best performing retailer was Marks and Spencer at number 12, as it showed remarkable prowess in delivering the ranges its customers craved despite the competition across the sector.”
#1. NatWest has been on a roll
NatWest LON:NWG has been on a roll, with third-quarter trading beating expectations. Default rates remained at stable and low levels, and despite pessimism surrounding the UK Budget, an upgrade in the UK’s growth prospects for 2025 bodes well for banks sensitive to the broader economic temperature. Guidance for income has been coming in higher as interest rate cut expectations have been revised. With rates expected to stay a bit higher for longer, that’s building in improved underlying performance as it keeps net income margins more robust.
There’s been continued progress in keeping costs under control and although mortgage pricing has been proving a little painful over recent quarters as more profitable business during the pandemic was replaced, that will drop out of the equation moving forward with profitability of new and existing business now the same.
NatWest is a big beneficiary of its large structural hedge. Banking books have inherent interest rate risk, and like an insurance policy, the hedge is designed to reduce this and smooth out net interest income. The way the hedge has been designed means it’s going to be rolling onto better rates in the coming years from some of the lowest rates in the sector, it’ll be another sector tailwind to enjoy.
#2. Rolls Royce benefiting from diversified operations
Rolls Royce LON:RR. has been having to navigate some pesky supply chain challenges but it’s still on track to hit full-year targets. Its benefitting from travellers refound desire for long-haul trips – as it produces and services aeroplane engines for bigger planes flying international routes. The number of hours those aircraft stay in the sky has been rising, back above 2019 levels. But Rolls Royce is also on a restructuring flight. CEO, Tufan Erginbilgic, is delivering on his promise to transform Rolls into a leaner, more focused company, and its already translating into lower debt levels and higher margins.
There have been some concerns about the performance of some of its newer generation engines, with regulatory fixes likely needed and strike action is complicating the matter. Rolls Royce is also benefiting from a diversified operations with its position in the defence and aerospace industry is enviable with high barriers to entry.
#3. DS Smith merger driving share price growth
Deal progress has been a driver of the DS Smith LON:SMDS share price as it presses on with its merger with the US-based International Paper Company. Although the paper and packaging market hasn’t recently been a very clement place to be with lower industry prices hitting profits, it posted a decent set of half year results.
It’s also made significantly higher cost-savings than investors expected, and there is further opportunity for efficiency gains. The group is a key supplier of cardboard boxes to the e-commerce and consumer goods sectors, and it has exposure to attractive end markets, especially with the shift away from plastic packaging. Volumes are showing signs of recovery and merging with IPC will mean it can also make efficiencies by integrating plants and sharing technology.
IAG sees upswing in capacity and lower fuel prices
British Airways owner IAG LON:IAG has been gliding higher as the company carried more passengers on flights that have been increasingly full. This upswing in capacity just as costs fall due efficiency savings and lower fuel prices has translated into a 15.4% profit surge in the third quarter, beating market expectations.
There might have been continued pressure on consumers’ incomes, but it appears people are ringfencing available budgets to spend on short trips and holidays abroad, with pent-up demand for travel showing little sign of abating just yet. Squeezing more passengers onto each flight increases profitability and has been part of recipe for success.
There are risks ahead, not least the fact hat travel can still be susceptible to geopolitical shocks and economic downturns. IAG is also set to spend heavily on infrastructure, including deep data dives and analysis to try and reduce disruption and improve customer experiences. These should help win more loyalty, but revenue will need to keep up with investment.
Barclays benefits from improving investor sentiment
Barclays LON:BARC has been benefiting after impairments came in lower than expected, with fewer loans turning bad and sentiment towards the bank has also shifted higher thanks to expectations that central bank monetary policy will ease a bit more slowly, which will help net interest margins.
The bank has had a good grip on costs and the trend of savers shifting to higher rate longer term savings accounts over the last few quarters is slowing down, which bodes better for profits. Barclays has its tenacles far wider than the UK – it’s a big global investment bank with a large credit card business. Default rates here were a worry but these have begun to stabilise, and there are signs of recovery in investment banking fees. Equity trading has also been higher but given the intense competition in the market, keeping pace with rivals is set to be a challenge.
Marks and Spencer making remarkable progress
It might not have made the top five or even the top ten best performing shares, but Marks and Spencer LON:MKS is ahead of the rest of the retail pack in the FTSE 100 when it comes to its 2024 showing on the markets. Marks and Spencer has been making remarkable progress with its ranges, which have tickled the fancy of shoppers, leading to some impressive revenue growth.
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Its core customers have been more insulated from cost-of-living headwinds, but they’ll still have an eye on trimming costs. Clothing and Home has made some impressive strides and sales growth reflects improved customer perceptions of value, quality, and style. What is particularly impressive is that over 80% of M&S’s clothing has sold at full price – which is much higher than most of its rivals. Profitability dipped slightly in the first half – due to investment in digital platforms but this is positioning the company more resilient for future growth.
Operational changes are also helping M&S save on costs, which means they can keep food prices competitive, attracting more families. M&S offers highly curated, pared down ranges, compared to some of its competitors but it also has also sharpened its focus on offering value, for example through numerous multi-buy deals. M&S has given shareholders plenty to be happy about this year, growing market share and margins while implementing a significant cost-cutting programme. Operational and strategic improvements and enhanced cash generation means the business is now in much ruder health.
This article has been brought to you in association with Hargreaves Lansdown. All opinions expressed in this article are from the analysts and do not necessarily represent the opinions of The Armchair Trader.
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