Perhaps the subdued start to markets in 2024 isn’t all that surprising. Many FTSE 100 stocks enjoyed a welcome Santa Rally in the final couple of months of 2023. A little pullback is healthy.
However, I wouldn’t bet against the positive momentum returning next month as several companies — including last year’s biggest gainer, Rolls-Royce (LSE: RR)– reveal their latest set of full-year numbers.
Top of the stocks…for now?
As a Fool, I’ve learned to keep an open mind. For this reason, there’s certainly a chance the shares could manage another leg up when it reports on 22 February. Momentum is a powerful factor in stock markets. Betting against the trend is risky.
Besides, there are reasons for remaining bullish here. We know that consumers have been prioritising holidays and travel over other discretionary spending as the cost-of-living crisis rumbles on. As a provider of jet engines (and maintenance services) to airlines, that’s a boon for the £25bn cap business.
Then again, has the ascent been a little too quick for comfort? Interestingly, broker Berenberg recently slapped a ‘sell’ rating on the stock on concerns that the company might struggle to meet its mid-term guidance.
The shares now trade on 24 times forecast earnings too. Such a valuation suggests that CEO Tufan Erginbilgiç and co will need to keep on delivering in terms of turning the company around.
Whatever happens, I’m happy to watch from the sidelines.
Still in demand
Stock in BAE Systems (LSE: BA.) was, unsurprisingly, another big winner in 2023. As sad as it is, separate conflicts in Ukraine and Gaza reminded investors of the benefits that come from owning a company that provides products and services associated with the darker side of human nature.
As a result, I’m confident that full-year results on 21 February will be overwhelmingly positive. And if they’re better than expected, we could see fresh all-time highs being hit.
On the flip side, it’s certainly not a given that the shares will continue rising. After all, BAE now trades on 17 times forecast earnings. Initially, that looks reasonable. But this is now a premium to the five-year average. So, how much potential to rise is left?
I’d still be happy to buy for the strong and stable dividend stream if I had the cash. But I wouldn’t rule out some shareholder profit-taking on the horizon.
Waiting for the cut
A third top-tier share I’ll be watching is housebuilder Taylor Wimpey (LSE: TW).
I had this company down as one that could do well in 2024. This was assuming that interest rate cuts arrived sooner rather than later. As it turns out, many analysts now believe the latter will be the case after inflation moved back up in December.
On a positive note, this doesn’t seem to have affected sentiment. A 52-week high was recently set and could be exceeded if, as it predicted earlier in January, the firm reports operating profit at the top end of guidance when results are announced on 28 February.
On 16 times expected earnings, however, just how much of this is already factored in?
Since I’m already invested in peer Persimmon, I won’t be buying today. But I’m hopeful any optimism could be contagious for stocks in this sector.
