I’m searching for FTSE 100 shares I believe might surge in value next year. Here are two I’m keeping an eye on.
Market mayhem
Housing market data from the UK remains pretty chilly. For example, Halifax research released on Wednesday showed average home prices slip 2.3% in November. This was the largest month-on-month drop for a staggering 14 years. It was also much higher than the corresponding 0.3% drop in October, showing a sharp acceleration in downward momentum.
The outlook for UK housebuilders is quite uncertain as we move into 2023. Persistently high inflation could prompt more hefty interest rate hikes, pushing up mortgage costs. Rising unemployment and economic uncertainty might also hit buyer demand.
Baked in?
However, there’s an argument that these risks are currently baked into the share prices of most London Stock Exchange housebuilders.
Take Taylor Wimpey (LSE: TW) for example. Its shares trades on a rock-bottom price-to-earnings (P/E) ratio of 8.5 times for next year. Such a low valuation gives plenty of scope for share price gains if forthcoming industry data comes in better than expected.
I’ll be keeping a close eye on news flow in the next few months for signs of modest recovery. Indeed, there are already some reasons to be cautiously optimistic. Falling mortgage rates in recent weeks is one cause for cheer. An ultra-competitive home loans market could help support housing demand in 2023.
Another cheap FTSE 100 share
I also think the Glencore (LSE: GLEN) share price could be poised for big gains next year. For 2023, the commodities business also carries a mega-low valuation today. Its P/E ratio for next year sits at just 6 times. I’d argue that this reading fairly reflects the possibility of sinking raw materials demand as the global economy cools.
Signs that China has abandoned its zero-Covid policy is one reason why Glencore’s profits could surprise to the upside. This is likely to give a titanic boost to the country’s manufacturing sector and, by extension, to metal and energy values.
Glencore could also benefit from production problems across its commodities markets in 2023. For example, reports have emerged that Codelco will reduce refined copper sales to China by 50% next year due to trouble at its Chilean assets.
Taking a long-term view
That said, I wouldn’t bet the house (no pun intended) on either Taylor Wimpey or Glencore’s share prices soaring next year.
Trading conditions could be better than the market expects, pulling them higher. But the opposite is also true, of course, for a variety of company, industry and economic factors.
Guessing stock market movements is extremely difficult at the best of times. As economist John Maynard Keynes famously commented: “Markets can remain irrational a lot longer than you and I can remain solvent.”
But regardless of how their share prices perform next year, I believe both these FTSE 100 shares offer plenty of investment potential. Over the long term, I expect them to deliver solid capital appreciation and to provide decent dividend income. It’s why I already own Taylor Wimpey shares today.
