One dirt-cheap FTSE 100 stock I'd buy today and one I'd sell

Shire(LSE: SHP) was back on the march in Tuesday trading as speculation over a possible takeover by Japan's Takeda Pharmaceutical Company heated up.

The FTSE 100 pharma play, which was 6% higher from Monday's close at pixel time, has so far resisted the overtures of its Asian peer. How far Takeda will chase Shire's share price higher remains to be seen, but given the determination it has shown so far -- allied with Shire's still cheap valuation -- this story could well have much more distance to run.

It isn't difficult to see why it is such a peach in Takeda's eyes. The British company is a giant in the growing field of rare diseases, and its fast-improving pipeline provides plenty of revenues opportunities in the years ahead. Indeed, the number of programmes in its pipeline doubled in the four years to 2017 and now stands at around 40. What's more, the sale of the oncology division to Servier for $2.4bn this month provides it with greater resources to dedicate to keep developing its core operations.

Shire is expected to report earnings growth of 7% in both 2018 and 2019, forecasts that leave it dealing on a dirt-cheap forward P/E multiple of 11.2 times. I reckon this is a bargain given that its strong pipeline could well deliver titanic profits growth later down the line.

Shop around

I am a lot less confident over fellow Footsie member Next's (LSE: NXT) ability to generate strong earnings progression in the years ahead.

I myself used to own shares in the clothing giant, drawn in by the large dividend yields on offer. But I sold out several years ago as soon as the intense competitive pressures became apparent, putting stress on the retailer's sales-driving Next Directory online and catalogue division.

These strains have become even more apparent as Next's rivals have invested heavily in their own e-commerce operations in an effort to stay relevant in our increasingly-digitalised world. And since I held my shares, conditions on the high street have become that much more difficult as shopper budgets have become more and more constrained.

Against this backcloth, Next has seen earnings dip for the past two consecutive years, putting paid to its esteemed growth record.

And while a marginal earnings bounceback is forecast for the year to January 2019, leading to a predicted 4% rise in fiscal 2020, I am not convinced. As a consequence a low forward P/E ratio of 12.5 times fails to attract me.

In fact, I would consider a reading below the bargain watermark of 10 times to be a fairer reflection of sustained profits gloom as consumers continue to tighten their pursestrings. Chairman Michael Roney commented last month that "the wider economy, clothing market and high street look set to remain challenging."

And with Next also battling against a rising cost base, I reckon the company is far too risky right now, and wouldn't be surprised to see current forecasts heavily downgraded in the months ahead.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Shire. 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.

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