HomeInvesting2 top UK stocks I still wouldn’t touch with a barge pole
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2 top UK stocks I still wouldn’t touch with a barge pole

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Picture supply: Getty Photographs

I prefer to hold an open thoughts on the subject of UK shares, however some nonetheless instinctively fear me, together with these two FTSE 100 giants. I’ve by no means owned both, however I’ve been sorely tempted at occasions. Fortunately, I didn’t seal the deal.

One identify that has caught my eye is international promoting and media group WPP (LSE: WPP). It’s been beneath stress since founder and driving power Sir Martin Sorrell exited beneath a cloud in 2018. The shares have misplaced 28% of their worth over the previous yr and now commerce at a 10-year low.

I’m afraid of the WPP share value

I used to be tempted as a result of the inventory seems low-cost, with a price-to-earnings ratio round 10.5, and affords a juicy trailing yield of seven.5%. That’s one of many highest on the complete FTSE 100. This profile suits a lot of my current share purchases, however I’ve to attract the road right here.

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Alongside its personal missteps, WPP can also be on the mercy of deep market shifts. Probably the most urgent is synthetic intelligence. Outgoing CEO Mark Learn just lately admitted AI is “completely disrupting our enterprise”. That’s a worrying notice for the boss to finish on.

AI instruments now permit corporations to generate artistic content material in-house, probably lowering demand for conventional media businesses. Whereas WPP was an early adopter of the expertise, I’m not satisfied it will probably keep forward of the curve.

It has already misplaced its crown because the world’s largest promoting agency by income to France’s Publicis. Now it faces renewed stress from the continued $13.25bn merger between US rivals Omnicom and Interpublic Group.

WPP isn’t in freefall. Q1 outcomes launched on 25 April confirmed reported revenues down 5% to £3.24bn, and simply 0.7% decrease on a like-for-like foundation. However the course of journey stays unclear, and I want to keep away from companies in the midst of existential transitions. The brand new CEO, as soon as appointed, has to get it proper.

Vodafone shares set off me too

The opposite inventory I’ve lengthy averted is Vodafone (LSE: VOD). I’ve been writing concerning the telecoms big for greater than 15 years, and whereas its chunky dividends have typically tempted me, the share value’s relentless decline has stored me at arm’s size.

There are causes to be extra optimistic as we speak. CEO Margherita Della Valle’s turnaround plan is making extra seen progress than earlier efforts, and the Vodafone share value has climbed 7% over the previous yr.

Sure, the dividend was halved in March, however the shares nonetheless provide a stable trailing yield of 5.1%, which is comfortably above the FTSE 100 common.

Full-year revenues rose 2% to €37.4bn, and one other €2bn share buyback has lifted sentiment. The merger of Vodafone UK with Three also needs to unlock operational advantages.

However that is nonetheless a brutally aggressive sector. Vodafone faces margin stress from low-cost rivals throughout key markets. And though it diminished internet debt by €10.8bn in 2024, it nonetheless owes a hefty €22.4bn. That’s critical baggage as rates of interest show sticky.

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It should proceed pumping billions into 5G and fibre infrastructure, whereas nonetheless struggling in Germany regardless of investing €20bn there.

Vodafone is displaying indicators of life, however like WPP, I don’t need it let it get too near my portfolio.

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