FTSE 100 shares: 1 I’d buy and 1 I’d avoid!

FTSE 100 shares- 1 I’d buy and 1 I’d avoid!

Two FTSE 100 shares currently on my radar are Smurfit Kappa (LSE: SKG) and Kingfisher (LSE: KGF).

However, I’d only buy one out of the two of them when I next have some investable cash. Here’s why!

I’d buy Smurfit Kappa shares

Smurfit is one of the largest paper-based packaging businesses around. Packaging may not sound exciting, but when I think of the amount of day-to-day packaging consumers encounter, there’s an opportunity here, in my view.

The shares are down 14% over a 12-month period, from 3,488p at this time last year to current levels of 2,994p.

Macroeconomic volatility has hurt most FTSE 100 shares, and Smurfit is no different. This is also the biggest ongoing risk for the business. Inflation is a worry as it increases the cost of raw materials required for packaging solutions. When costs rise, profits and margins can shrink. This could hurt investor returns and growth plans.

Looking at the bull case, the share price drop has presented an opportunity to snap up cheaper shares. They currently trade on a price-to-earnings ratio of 10, which looks good value for money.

In addition to this, a dividend yield of 4.3% would help boost my passive income. However, I’m aware that dividends are never guaranteed.

Moving on, my bullishness stems from Smurfit’s profile, track record of performance, and continued rising demand for packaging solutions.

The last point is linked to the e-commerce boom and the changing habits of consumers. With online shopping continuing to grow, packaging demand should increase. Plus, packaging is needed for pretty much everything we buy, including from our local shops and supermarkets. This continued demand should help boost Smurfit’s performance and returns.

Finally, I reckon the fact Smurfit manufactures its own packaging with its own paper mills is a major plus point. This can help it control quality, and more importantly, cost.

I think once economic turbulence cools, Smurfit shares should climb, as well as performance and returns.

I’d avoid Kingfisher shares

Owner of popular DIY and home improvement brand B&Q, Kingfisher shares have been hit hard by recent issues including a weaker property market and the cost-of-living crisis.

The shares are down 22% over a 12-month period, from 280p at this time last year to current levels of 217p.

In Kingfisher’s case, the falling share price doesn’t look like an opportunity to me. The business has recently provided consecutive profit warnings. Although not unexpected, it’s not a good omen.

Kingfisher has pointed to weakened consumer spending. I can’t say I’m surprised. People are more concerned with heating and eating, rather than new wallpaper and paint for their homes.

Conversely, if interest rates were to come down and bring down energy, food, and other soaring costs, consumers could find themselves with more cash for DIY projects. This could boost Kingfisher’s performance and investor confidence.

However, as the latest inflation figures showed in December, we’re not out of the woods yet. In turn, the Bank of England and US Federal Reserve haven’t yet begun to cut rates just yet, despite murmurings of the possibility.

I’m going to keep Kingfisher shares on my watch list for now and revisit my position in the coming months.

The post FTSE 100 shares: 1 I’d buy and 1 I’d avoid! appeared first on The Motley Fool UK.

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Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.