It normally catches my attention when a company reports solid earnings and the stock market response is muted. Assuming the stock isn’t overvalued, I’m often happy to buy such shares enthusiastically. With this in mind, here are two FTSE 100 shares that look great buys to me right now.
Credit data in demand
Experian (LSE: EXPN) stock has underperformed the FTSE 100 this year, down 21% compared to a 1.5% decline for the wider index. This is despite the credit data giant chugging along nicely, with revenue and earnings both trending upwards.
There was more evidence of operational progress this week as Experian delivered a strong half-year trading update. The firm’s revenue was up 7% year on year, while underlying profit was 8% higher than last year. Despite Q3 headwinds, management still expects organic revenue growth of 7%-9% for the full year. Plus, the interim dividend also increased 6%.
These are solid numbers. So why are the shares still down so much this year?
The most likely answer is ongoing concerns that an economic slowdown might dampen consumer confidence and demand for the firm’s credit rating services. And I think this remains a risk for the stock, especially if the looming global recession is severe and prolonged.
On the flip side, Experian’s key customers include banks, non-traditional lenders and insurance providers. They use its credit reports to analyse and make decisions around credit risk, fraud prevention and lending terms. This data is needed to adjust their lending criteria.
Experian reported that it’s also winning more clients in the energy and utility sectors. These companies increasingly need data to assess the impact energy price hikes are having on households.
This tells me that Experian’s credit data is becoming more and more indispensable, whatever the economic weather.
The stock currently has a price-to-earnings (P/E) ratio of 27, which isn’t exactly cheap. But it’s cheaper today than it has been for some years. That’s why I recently bought the stock to hold for the long term.
A growing order book
Unlike Experian shares, BAE Systems (LSE: BA.) stock is easily outperforming the FTSE 100 this year. In fact, the shares have rallied 39% year-to-date.
The war in Ukraine caused most major nations to instantly increase their defence budgets, particularly across the EU. As the largest defence contractor in Europe, BAE Systems has experienced a surge in business.
In the first half of 2022, the firm’s order intake increased 70% year on year to £17.9bn, not far off its full-year total of £21.4bn for 2021. Also, as the company receives a large part of its earnings in dollars, it’s benefiting from a strong US currency.
The UK and US account for around three-quarters of BAE Systems’ business. So one risk for the stock is if both nations choose to dial down military spending. This could impact BAE’s growth prospects.
However, I think demand is likely to remain strong from both the UK and US, as well as elsewhere.
Plus, the stock pays an income, with a divided yield of 3.3%. I don’t own any defence stocks in my portfolio, so I’m going to buy BAE shares. I think they can provide useful diversification.
Ben McPoland has positions in Experian. The Motley Fool UK has recommended Experian. 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.
Motley Fool UK 2022