Taylor Wimpey (full-year results 28 February)
Housebuilders have to deal with the swathe of negativity surrounding the sector, as everyone waits for house prices to collapse. Given the absence of supply and strong demand, this seems unlikely. Indeed, this constant worry has seen the sector become chronically undervalued, with the likes of Taylor Wimpey on 9.5 times earnings for 2017.
The 6.5% dividend, which is expected to rise to 8% during 2017, is just one more element that speaks for the sector’s attractiveness. So far, the cost inflation does not seem to be a factor, but could come into play should sterling remain under pressure. Taylor Wimpey is expected to report adjusted earnings per share (EPS) of 17.7p, up 20.4% year on year, and £3/6 billion in revenue, 14.7% higher compared to 2015.
The shares have done well since the Brexit low around 110p. With the broader market seemingly on the cusp of a broader sell-off we may get an opportunity to pick up Taylor Wimpey lower, down towards 160p and the rising trendline. On the upside the shares have been contained below 180p, but a break higher would suggest a move to the pre-Brexit peak of 190p.
WPP (full-year results 3 March)
Steady growth in earnings in recent years lies behind the rise in WPP shares to an all-time high in January this year. It has steadily added to its brands with careful acquisitions, including two US firms in recent times. Earnings are expected to rise by 15% and 9% this year and next year respectively, which leaves the firm on a forward PE of around 14 times earnings. Dividends are also expected to maintain their growth, with the 2017 yield of 3.4% rising to 3.8% next year.
A high-growth stock like WPP tends to move very closely in-line with the market, and 2016 was no exceptions. Dips in February, June, and November coincide nicely with the broader sell-offs, so any steady pullback in the FTSE should be reflected in WPP and give longs a chance to buy at cheaper levels. At present the shares are in retreat from an all-time high, but it would take a firm drop through £16.50 to really suggest that the rally is over.