2 Footsie stars I reckon could explode in Q4

Royston Wild discusses two Footsie giants that may detonate in the coming months.

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Data from the housing sector in the wake of the EU referendum can be described as ‘patchy’ at best.

Potential buyers have understandably been getting extremely jittery over the outlook for the UK economy as the country braces for Brexit, with fears over jobs and wages coming to the fore. And these concerns were underlined by latest Bank of England mortgage approval data last week, which showed the number of home loans drop to its lowest for 21 months in August.

Fortunately, house prices have failed to fall off a cliff since the referendum, as first-time buyer concerns have been mirrored by those of existing homeowners, encouraging them to put their moving plans on hold. This has significantly hampered the number of homes entering the market.

It is far too early to accurately forecast the direction of home values in the months and years ahead, such is the complexity of the UK’s European withdrawal.

Construction colossus

Still, with lenders still locked in an arms race to offer the cheapest mortgages on the market, and Britain likely to suffer a chronic housing shortage long in the future, I reckon the future remains bright for property values, and with it the earnings outlook of construction giants like Persimmon (LSE: PSN).

The FTSE 100 (INDEXFTSE: UKX) company already advised in August that “customer interest since [the vote] has been robust, with visitor numbers to our sites around 20% ahead year on year.” And sales had risen 17% from 1 July  to 23 August, the firm noted. Updates from Persimmon’s peers have been equally encouraging since the referendum.

I reckon similarly-positive news in the housebuilder’s next update, scheduled for Wednesday 2 November, could see the stock continue to rise from its post-referendum lows. Indeed, an ultra-low forward P/E ratio of 9.9 leaves space for a fresh share-price surge, in my opinion.

Tobacco titan

I also believe British American Tobacco’s (LSE: BATS) stock value could receive a shot in the arm when it next updates the market on Wednesday, October 26th.

July’s half-year report advised that volumes of British American Tobacco’s ‘Global Drive Brands’ — labels that include the likes of Pall Mall and Lucky Strike — surged 10.8% in the period. This result helped group revenues rise 4.2% during January-June, to £6.67bn.

Massive investment in these labels is clearly paying off, and I believe these measures should keep the top line moving higher in the years ahead.

While another strong update could prompt another share price advance, I reckon fears concerning the UK economy should keep investor demand for the classic defensive tobacco sector fizzing. British American Tobacco has already gained a fifth in value since the referendum on the back of these concerns.

The cigarette star can hardly be considered cheap on paper — a prospective P/E rating of 20.8 times sails above the blue-chip average of 15 times. Still, I reckon the enduring global popularity of British American Tobacco’s products merits this lofty premium.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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