As we enter the final third of what has likely been a pretty awful year for most investors, I’m looking for signs in company updates as to where the market may be heading next. With this in mind, here are two FTSE 100 stocks I’ll be watching like a hawk next month.
The crown has slipped
B&Q and Screwfix owner Kingfisher (LSE: KGF) did exceptionally well during the pandemic. With nowhere to go, many of us finally got to focus on those DIY jobs we’d not had time for.
Naturally, this could only last so long and it’s no surprise that demand has since moderated. However, the current cost-of-living crisis has served as a double whammy for Kingfisher. With many families now just trying to make ends meet, nothing but the most essential projects are put on hold.
This may be why the company is currently popular among short sellers. In fact, it’s even more ‘hated’ than battered cinema firm Cineworld!
Contrarian opportunity
Then again, it’s worth considering how much of this is already priced in.
Having crashed by over a third in the last year, shares in Kingfisher now change hands for just eight times earnings. We could see a huge bounce in the price if half-year numbers on 20 September are even slightly better than feared. This may be boosted further by the aforementioned short sellers rushing to close their positions. Although never guaranteed, there’s a chunky 5% dividend yield too.
Too much risk
However, I reckon there’s a chance that full-year earnings estimates might be revised down once the dust settles. Consequently, this stock may not be the bargain it appears. Therefore, I’ll be waiting for signs that we’re through the worst inflation-wise before becoming bullish about Kingfisher.
I’m more positive about another FTSE 100 stock reporting next month.
Another FTSE 100 stock that could soar
Like its index peer, shares in clothing stalwart Next (LSE: NXT) have not had a good 2022. The FTSE 100 stock has lost almost 25% of its value in the last year thanks to the dip in consumer sentiment.
Even so, it’s interesting to note that the share price has continued falling despite the company raising its guidance on full-year sales earlier this month in response to better-than-expected Q2 figures. Growth of around 6.2% is now predicted, slightly above the previous estimate of 5%. Pre-tax profit is also forecast to be £10m higher at £860m.
I wonder if, due to the ongoing hot weather, it might actually beat these projections when half-year numbers arrive on 29 September.
Better buy?
Next shares now trade at a price-to-earnings (P/E) ratio of 11. That’s actually fairly average relative to consumer stocks in general. What’s more, the £8bn cap operates in a hyper-competitive sector where customer loyalty is hard to maintain.
Then again, being a Fool means I can afford to take a long-term approach and base decisions on fundamentals.
As retailers go, Next is a cut above the rest. It’s got a solid record when it comes to generating returns on the money it invests. The management team — led by Simon Wolfson — is also highly experienced. Importantly, there’s limited interest from short sellers too.
So, while perhaps not a bargain, I do feel more confident about taking a position here in the near future.
