3 Stocks Set To Beat The FTSE 100? BAE Systems plc, WM Morrison Supermarkets PLC And Wolseley plc

Shares in distributor of plumbing and building materials company Wolseley (LSE: WOS) have fallen by over 10% in early trade after it cautioned on its future outlook in today’s full-year results.

In fact, Wolseley stated that industrial markets in North America (which account for around 15% of its revenue in that region) have been challenging in recent months and it expects this situation to continue in future. Furthermore, it expects to generate little growth from its UK operations, which together appears to have dented investor sentiment in the business.

Still, Wolseley is continuing to make excellent overall progress. Trading profit for the company increased by 11.4% at constant exchange rates partly as a result of a 10 basis point rise in trading margins, with them now being at a record 6.4%. And, with a £300m share buyback programme being announced as well as a 10% hike in dividends, Wolseley’s appeal as an income stock has grown.

Looking ahead, Wolseley is forecast to increase its bottom line by 13% next year. This puts it on a forward price to earnings (P/E) ratio of 14.3, which indicates good value for money. As such, and with the bulk of its business performing well, today’s share price fall may be overdone and long term investors may wish to buy a slice of Wolseley ahead of potential index-beating performance.

Similarly, BAE (LSE: BA) was very much out of favour at the start of 2014, with a profit warning causing its shares to slide in value. Since then, it has risen by 30% while the FTSE 100 has fallen by 9% and, looking ahead, further outperformance seems likely.

That’s because BAE continues to offer excellent value for money. For example, it trades on a P/E ratio of just 11.7 and this indicates that its shares could be the subject of an upward rerating. A catalyst for this could be growth in the company’s bottom line of 5% which is being pencilled in for next year. While this is not an astounding rate of growth, it shows that the company is turning its disappointing performance around and also that global demand for defence products is on the rise.

Clearly, Morrisons (LSE: MRW) has been a major disappointment in recent years. The supermarket sector has been a hugely challenging place to do business and, looking ahead, it seems to offer more of the same in 2016 and beyond.

However, Morrisons as a business is set to change. It is focusing on its core offering and is ditching the idea of becoming a major convenience store operator. This should allow it to concentrate on generating efficiencies and have a positive impact on margins and profitability moving forward.

Although it will take time for Morrisons’ new management team to make the changes they deem necessary, it appears as though next year’s financial performance will be a major improvement on previous years. Morrisons is forecast to post double-digit earnings growth for the first time since 2012 and, with its shares having fallen by 14% since the turn of the year, such a performance could be the catalyst to turn their trajectory around and allow them to beat the FTSE 100 in the medium to long term.

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Peter Stephens owns shares of BAE Systems and Morrisons. 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.