The UK’s leading index is on the up, and it seems demand for FTSE 100 shares is rising. The index has been flirting with the 8,000-point mark for a couple of weeks now, and even surpassed that point briefly yesterday (2 April).
With the potential for all-time highs around the corner, could stock valuations start creeping up too? If so, two stocks I’d love to buy when I have the cash to do so before this are Taylor Wimpey (LSE: TW.), and easyJet (LSE: EZJ).
Here’s why!
House builder
Taylor Wimpey has been hurt by recent turbulence. In fact, higher interest rates, inflationary pressures, and increased mortgage rates have hurt the entire building and house buying market.
The shares are up 12% over a 12-month period from 117p at this time last year, to current levels of 132p.
If investor sentiment continues to rise, and interest rate cuts are coming, which many economists and city traders think they are, I can see the business rebounding, and the shares climbing.
Plus, due to the demand for housing outstripping supply in the UK, there is potential for Taylor Wimpey to convert this into boosted performance and returns for years to come.
Speaking of returns, Taylor Wimpey offers an attractive dividend yield of just under 7%. It looks well covered by a decent balance sheet. However, I do understand that dividends are never guaranteed. Furthermore, the shares don’t look overly expensive right now on a price-to-earnings ratio of just 13.
From a bearish view, I’m conscious that higher costs and continued turbulence could impact performance and returns. Higher costs can take a bite out of profit margins. Plus, there’s no guarantee the economy can turn a corner enough for the Bank of England to start cutting rates.
Come fly with me!
Newly anointed FTSE 100 stock easyJet has experienced a good comeback since the pandemic. That period was a difficult time as the aviation industry and leisure travel ground to halt.
The shares are up 7% over a 12-month period from 512p at this time last year, to current levels of 551p.
Demand for air travel seems to have returned close to pre-pandemic levels, and easyJet has capitalised. The business recorded a profit of £445m for 2023. This is a stark difference from the £187m loss the year before. With the business set to fly more customers this year than last, I reckon there’s a good chance it can continue its good run of performance.
From a fundamentals view, the shares look decent value for money on a price-to-earnings ratio of just 12. Furthermore, there’s a small yield of less than 1% on offer. However, this could grow in line with the business.
Looking at the bear case, I’m fully aware that the aviation industry can be quite risky. There are one-off events that could hurt demand for air travel, such as the pandemic. Plus, external events, such as geopolitical tensions and rising fuel costs, could put a dent in the firm’s performance and hurt sentiment and returns.
