The stock market has been moving up, down and around for a while now. Over the past year, the benchmark FTSE 100 index of leading shares is up — but only by 4%. I think it could rebound further. Here are two FTSE 100 shares I have been thinking of buying in anticipation of further recovery.
Howden Joinery
As anyone with aging floorboards knows, wood can creak. Shares in timber supplier and joiners’ merchant Howden Joinery (LSE: HWDN) have also been creaking recently. These FTSE 100 shares have lost 28% of their value in the past 12 months.
I can understand why some investors have taken fright at the outlook for the company. A coming recession and concerns about the housing market could be a double whammy for demand. Consumer spending on home renovation might fall, while the building trade may also see a decline in new building starts. That is a threat to both revenues and profits at Howden.
But a price-to-earnings ratio of 12 looks cheap to me for a company of Howden’s quality. It has spent years establishing deep relationships with big spending customers like tradesmen. Its network of depots gives it a competitive advantage in local markets across the country. Even if demand for joinery products does fall for a while, there will still be some level of need for them. I see Howden as a great business selling at an attractive price. I would therefore consider adding these FTSE 100 shares to my portfolio.
JD Sports
The retailer JD Sports (LSE: JD) has had a rough year. The shares have fallen 29% over the past year. The company has been in the headlines for the wrong reasons, from sudden executive changes to a forced cut price sale of its Footasylum subsidiary.
But as a believer in long-term investing, I always try to look beyond the headlines and understand what the investment case for a company may be across a timeline of years. When it comes to JD, I am upbeat and reckon the current share price looks cheap.
This retail giant is a well-honed machine. Last year, for example, it produced revenues of £8.6bn. That was a 40% jump from the year before. Profit before tax of £655m was more than double what the company had reported the prior year. There were some exceptional factors driving this incredible performance. But the company has said that its headline profit before tax and exceptional items this year ought to come in at the same level. Like for like sales have grown 5% so far compared to the same period last year.
Why I’d buy these FTSE 100 shares
Compare that profit to the company’s market capitalisation, which currently stands at less than £7bn. JD Sports has a proven retail formula and the opportunity for more substantial growth thanks to its international expansion. Yet it trades for little more than ten times pre-tax profits.
FTSE 100 shares carry risks just like any other ones. JD’s global push could meet with strong local competition, pushing down profit margins. New management may also struggle to match what the old leadership achieved over the past few years. But I continue to like the growth potential of JD Sports and have been scooping up its shares for my portfolio.