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2 FTSE 100 stocks I’d buy for my ISA at the current share price

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Clothing chain Next (LSE: NXT) has been putting on the style with its share price up 30% in the last 12 months, thrashing the FTSE 100 as a whole, which grew just 2.7%. This outperformance is even more impressive as Next operates in the hard-pressed high street retail sector, which is being hammered by squeezed incomes and online shopping.

Sales up, shares down

Today the Next share price is down more than 3% even though it posted a 2% rise on third-quarter full-price sales including interest income, which was slightly ahead of guidance given in September.

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The initial stock market reaction to updates and results tends to zone in on the negatives rather than the positives, and true to form, markets focused on management’s warning that sales growth for the rest of the year is unlikely to be as strong as in October. This fright before Halloween has driven the share price lower.

October sales were particularly strong as temperatures dropped after September’s warm weather, sending shoppers scuttling out to buy Next’s autumn/winter collection. Having stocked up their winter wardrobes, shoppers may not spend so freely in November and December.

Online up, offline down

Today’s brief statement showed continued outperformance by the £8.83bn group’s online division, with full-price sales up 9.7% over the quarter, against a 6.3% drop in retail. Overall, the trend was up, with 3.5% growth from the start of the year to 26 October.

I still reckon that is a fine performance, given current challenges. It also means we need to view Next as an online business, because that’s now where it bags the majority of sales.

Management deserves plaudits for repositioning the business for the new online world, and producing clothes people still want to buy. It may be helped by the resurgent pound, which will make imported materials cheaper, and any Brexit clarity would also be welcome.

Trading at a forward valuation of 14.7 times earnings, you have to pay a full price for Next, while the 2.5% forecast yield is well below the FTSE 100 average of 4.7%. Both are tribute to its recent smart performance.

A bit fishy

If you prefer to pick up high-yield bargains instead, you will find plenty on the FTSE 100 at the moment, such as B&Q and Screwfix owner Kingfisher (LSE: KGF). The £4.32bn group is a retail sector struggler, its share price falling 15% over the last year.

Boss Véronique Laury paid the price, leaving the company with its shares down 37% since she joined nearly five years ago. The slowing UK housing market slowed sales of DIY goods, while sales at its French chains Castorama and Brico Depot have been falling.

The group’s operations in Romania and Poland have offered some respite, and new CEO Bernard Bot brings much-needed experience in large-scale transformation programmes, logistics, and supply chain management.

Kingfisher has served shareholders poorly, in direct contrast to Next, but that leaves it trading on a much lower forward valuation of 10.1 times earnings, and with a far higher forecast yield of 5%, nicely covered twice. Earnings are forecast to grow 6% and 5% this year and next. This unloved recovery play is more tempting than I expected.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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