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2 FTSE 100 stocks I’d buy on the next dip

These two FTSE 199 stocks are cheerfully riding the current stock market bull run, but look a little pricey as a result. They will be first on my shopping list when markets slide.

Shares in US-focused plumbing and heating merchant Wolseley (LSE: WOS) recently hit an all-time high, tempting some analysts to suggest that now could be the time to sell. Trading at 20.55 times earnings, you can see why they might think that. Recent rapid growth, which has seen the stock climb 30% in the last year and 114% over five years, should give existing shareholders plenty of profits to bank. This has also driven down the yield, which is currently just 1.95%.

There is another reason why you might be lured into selling. Wolseley generates 66% of group revenues and 84% of trading profit from its US arm Ferguson, and has therefore been boosted by sterling’s post-Brexit slump against the dollar. It has been so successful that the company now proposes changing its name to Ferguson (although it would retain Wolseley in the UK and Canada).

One to watch

On Tuesday it reported a trading profit of £515m for the half-year to 31 January, a rise of 25% year-on-year, although just 5% at constant exchange rates. However, the dollar play may now be coming to an end as markets start to lose faith in Trumpflation, and the pound appears to find a floor against the greenback. In that case, recent currency tailwinds could quickly turn into currency (and share price) headwinds.

For those reasons, I wouldn’t buy Wolseley today. However, forecast earnings per share (EPS) growth of 19% in the year to 31 July, followed by 9% in the next four months, suggest continuing strong growth prospects in the pipeline. The yield may be low but is nicely covered 2.5 times, which gives scope for progression, and analysts project it could rise to 2.5% by next summer. Wolseley is pulling out of its underperforming Nordic markets to focus on the US, where it may ultimately list. I see strong growth opportunities ahead, especially if North America starts building again. All we need now is a little market correction.

Full house

What’s not to like about household goods giant Reckitt Benckiser (LSE: RB)? Its stock just keeps rising and rising, year after year, as it gets on with the job of selling everyday health, home and hygiene brands such as Dettol, Harpic, Scholl, Nurofen, Vanish and Durex to an ever-expanding range of global consumers. This company is built to thrive in boom times and recessions as well, as people still want to clean their homes when times are hard, get pain relief for their headaches, and have fun without having babies.

Actually, I will tell you what’s not to like about Reckitt Benckiser. Its high valuation of 23.87 times earnings, which follows five-year growth of 113%, and its lowly dividend yield of 2.1%. I am not saying it is overvalued, it typically trades at around this premium level. It is just that a market dip, where investors sell indiscriminately, could be a great opportunity to buy this great British (but actually global) company at a knock-down price.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser. 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.