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3 FTSE 100 shares I’ll be watching in January

Scene depicting the City of London, home of the FTSE 100
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The festive season has provided investors with some respite from what continues to be a tricky period for the UK market. However, it won’t be long before companies start releasing updates on trading. With this in mind, here are three stocks from the FTSE 100 that I’ll be keeping an eye on in January. 

Next

Fashion and lifestyle retailer Next (LSE: NXT) will be among the first companies to report to the market in 2022. A trading update, scheduled for 6 January, should serve as something of a bellwether for how well retailers have fared in the vitally important run-up to Christmas. 

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Considering just how challenging 2021 has been for some businesses, Next investors have had a fairly decent year. Boosted by pent-up demand from shoppers, shares have climbed 15% in value and outperformed the FTSE 100. 

Whether this momentum has continued more recently is difficult to say. At 10%, full-price sales growth in Q4 is already expected to be lower than that seen in Q3. It could be even lower if the Omicron variant has succeeded in keeping people away from stores in December.

Still, Next doesn’t look overvalued to these eyes at just over 15 times earnings. That’s fairly average for its sector and pretty reasonable for such a quality company. On balance, I’m inclined to think there could be more upside ahead.

Tesco

Supermarket titan Tesco (LSE: TSCO) is another FTSE 100 company that’s down to report to the market and investors in early 2021 (13 January). Shares in the business are up 22% from where they started the year, far outpacing the index.

Recent research by Kantar suggests this rise isn’t unjustified. Tesco significantly outperformed its main rivals in the 12 weeks to 28 November. This resulted in a 0.7% gain in market share, taking its dominance back to a level not seen since February 2019. 

It’s not been plain sailing though. In addition to dealing with the ongoing disruption caused by the pandemic, Tesco has also faced a difficult run-up to Christmas with the threat of industrial action by workers at nine of its distribution centres. A strike was averted after the company agreed to a new pay deal. 

Tesco stock is currently trading for just under 14 times earnings. I’d be surprised if the company were able to replicate this year’s gains. Nonetheless, the 3.5% dividend yield should compensate for this.

Associated British Food

A final FTSE 100 I think is worth watching in the first month of 2022 is Primark-owner Associated British Foods (LSE: ABF). The company’s shares have done quite poorly in 2021, falling by almost 11%. 

This feels a little harsh, especially as ABF’s diversified business model arguably makes it more defensive compared to other retailers. Moreover, the company recently announced that trading had been ahead of expectations and like-for-like sales in Q4 were better than in the previous year. ABF also said it was managing to cope with supply chain issues to such an extent that pre-Christmas trading was unlikely to have been affected. 

Sure, the investment case isn’t bulletproof. Cost inflation could prove a near-term headwind. The seemingly perpetual pandemic could also have a few chapters left. The lack of online presence needs to be borne in mind too.

Even so, I think a P/E of 14 looks decent value for this top-tier stock. Anticipation of a positive trading update on 20 January could see the shares recover beforehand. 

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods and Tesco. 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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