Are these FTSE 100 stocks brilliant bargains or just value traps?

Could these two FTSE 100 (INDEXFTSE: UKX) shares be considered risk-heavy duds or under-bought beauties?

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I have to take my hat off to Next (LSE: NXT). Despite conditions becoming more and more lacklustre on the UK high street, the retailer has been what can only be described as extremely resilient.

During the course of 2018 the FTSE 100 has been peppering the market with upgrades to its profits estimates, and it was at it again just this week following the receipt of positive half-year results. Next said that better-than-expected sales in August and September helped full-price sales in the first half of fiscal 2019 rise 4.5%, smashing the 1% increase forecast in January as well as the 2.2% rise predicted in May.

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As a result, the clothing colossus now expects pre-tax profits for the 12 months to January 2019 to be £10m better it last expected, at £727m and up fractionally from last year’s £726.1m. City brokers are even more ambitious, though, forecasting a 4% bottom-line rise this year. A similar increase is anticipated for fiscal 2020.

Still not tempting

Next may have done an admirable job of defying gravity thus far but I still reckon it’s in danger of succumbing in the months ahead.

Latest figures from the Confederation of British Industry showed the retail sales balance dropping to +23 for September from +29 the month before. And the body suggested that things could be about to get worse, commenting that “although the summer months seem to have provided a boost to retailers after a weak first quarter, we expect momentum to be relatively subdued going forward as firms continue to grapple with anaemic growth in real household earnings and structural changes such as digital disruption and new market entrants.”

Right now Next can be picked up on a conventionally-cheap forward P/E ratio of 12.6 times. But given the twin troubles of dwindling spending power in the UK and rising competition, I’m still not tempted to buy into the share today, even if summer spending has been better than anticipated.

A better bet

Conversely, I feel that fellow Footsie play CRH (LSE: CRH) can be considered a genuine bargain. At current prices CRH’s forward P/E multiple sits bang on the widely-regarded value watermark of 15 times.

True, it’s expected to endure a little bottom-line trouble in 2018 — the City is forecasting a 9% earnings dip right now — but CRH is expected to come bouncing back with a 17% advance in 2019, mimicking the strong advances of recent years.

And it’s not difficult to see why the number crunchers remain optimistic over the building materials firm. In critical European territories CRH commented as recently as last month that “construction markets continued to recover and pricing gathered momentum” in the first six months of 2018, while in the Americas it also witnessed “solid volume and price growth against a positive economic backdrop,” it said.

The company’s colossal appetite for acquisitions also convinces me that the long-term revenues outlook remains extremely rosy. It has made a huge 22 takeovers in 2018 so far, including the game-changing purchase of North American cement specialist Ash Grove, and two investments elsewhere.

And so I would consider the FTSE 100 firm worthy of a premium rating given its strong revenues outlook, not to mention the probable profits upside from its ambitious plan to boost margins by 300 basis points by 2021 on an organic basis. I believe that now is a great time to buy into the global materials powerhouse.

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Royston Wild 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.

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