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1 FTSE 100 stock I’d buy and one I’d avoid in January

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  • PTON
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Hand arranging wood block stacking as step stair on paper pink background
Hand arranging wood block stacking as step stair on paper pink background

As I consider adding some stocks to my portfolio in January, I need to be selective. 2022 is going to be a much more challenging year for stocks than 2021 in my opinion. The economic uncertainty, mixed with rising interest rates and inflation will mean that I need to be smart about what FTSE 100 stocks to add. As a result, here’s one I like, but also one I’m also staying away from right now.

An attractive FTSE 100 buy

The FTSE 100 stock I’m considering buying is Next (LSE:NXT). Over the past year, the share price has risen by 5.2%. The company is a key player in clothing and home products in the UK. It operates both online and through a network of several hundred stores throughout the country, as well as having a presence internationally.

The online operation helped the business to cope in difficult periods during the pandemic when stores were closed. This is one reason that gives me confidence going forward. Even with uncertainty still in the air around Covid-19, I think that Next is a retailer that’s in a better position than some peers to navigate further disruption.

Another reason why I’m positive on the FTSE 100 stock is due to the recent trading update. It showed a strong trading performance over the two months through to Christmas. Full-price sales were up 20% when compared to the same period in 2019. It also increased its pre-tax profit forecast for the year, as well as expecting net debt to fall by £487m to £625m.

One risk is that prices might have to be increased to counteract higher inflation. The business noted higher overall costs from freight rates, manufacturing costs and wage inflation. Increasing prices could see lower sales if customers choose to shop elsewhere.

A fall from grace

A stock I’m not considering buying at the moment is Peloton Interactive (NASDAQ:PTON). I last wrote about the company late last year, following a 35% fall in a day after bad results.

The company has managed to slow the fall since then, but over the past year it’s still down 77%. Even at $36, I don’t think the company is an undervalued buy, with the IPO price having been $29.

The business admitted core issues in the latest trading update. It mentioned that fiscal 2022 would be challenging due to “reopening economies, and widely-reported supply chain constraints and commodity cost pressures.” I’d also add into the mix that product recalls from last year over safety concerns won’t help with reputational damage.

With this backdrop, I struggle to see why I’d buy this over a FTSE 100 stock like Next. The company may have long-term value with diversification options away from just the Peloton bike that could support revenue growth in coming years. But I won’t be investing.

The post 1 FTSE 100 stock I’d buy and one I’d avoid in January appeared first on The Motley Fool UK.

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Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Peloton Interactive. 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.

Motley Fool UK 2022

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