When things are going badly for a company, the share price goes down, right? So why is it that shares in Wolseley, the plumbing and building materials supplier, have gone up by 25 per cent in the past six months?

Most of the news coming from the American residential housing market, which Wolseley feeds, has been poor and yesterday’s trading statement from the British company left little room for any optimism. Indeed, the decision to cut 4,000 jobs — about 5 per cent of the global total — is an unfortunately clear indication that trading conditions in the United States are causing genuine difficulties.

One explanation for the share price strength comes courtesy of bid speculation. Saint-Gobain, the French rival, has been mentioned in connection with a takeover. A period of trading weakness, moreover, might make it easier for a bidder to persuade Wolseley shareholders to opt for the certainty of a cash bid over the uncertainty of sticking with the status quo.

A takeover is possible but unlikely, notwithstanding the fact that Wolseley has many of the positive cashflow credentials admired by private equity and trade buyers alike. Wolseley has no trouble with getting access to capital. It is geared at 100 per cent and raised £650 million of fresh equity with ease six months ago. Meanwhile, past profits and share price performance give shareholders scant reason for complaint.

There is a more credible explanation for the superficially surprising share price rise. It may be simply that the market has familiarised itself with the scale of the difficulties facing the company. Between April and August last year, as evidence of the weakening US housing market emerged, Wolseley shares fell from £14.50 to £10.50. The market often assumes the worst if it does not know exactly how things are likely to turn out, so a bounce of some sort was always going to be the logical next step when it transpired that the US housing market was straining, rather than breaking.

Investors also drew comfort from the growing realisation that the US housing market, while weak overall, is worse in some places than others. Wolseley is exposed to weaker areas as well as some that have held up more robustly. Then again, Wolseley derives only about 25 per cent of sales from American housing. Industrial and commercial demand in North America remains good and the European picture, helped by acquisitions, is promising.

The job cuts, although nasty for the individuals involved, also leave Wolseley better equipped to profit from an improvement in trading if, or more likely when, the US housing market regains its health. Besides, the forward p/e ratio of 13, coupled with a three times covered dividend yield of 2.5 per cent, suggests the shares are reasonably valued at current levels. Buy.

IG Group

Shares in IG Group have more than doubled since the spread-betting group listed in 2005, driven higher by a string of good results. That trend continued yesterday as the group reported revenues and profits growth of 44 per cent in the six months to November 30.

Yet the company has developed a reputation for over-delivering. So, solid as the improvement was, City analysts saw no reason to increase their forecasts yesterday and the shares slipped 5 per cent on disappointment that the numbers were no better.

IG continues to increase its business at a robust pace, with demand for its betting products driven higher by a combination of expansion into new countries, a broadening of the type of bets that it offers and affiliate agreements with stockbrokers who direct punters in IG’s direction.

The group’s geographic expansion looks almost certain to continue, with new European financial regulations, known as MiFiD, set to make it easier for the company to enter new markets on an even footing. France and Spain look likely to be the next targets.

Such expansion plans should underpin growth and hedge against the possibility of a slowdown in any one country. Costs came in higher than expected at £27.6 million as the company invested in IT and marketing. But that investment should bolster future propsects.

The prospective p/e rating of 19 reflects investor hopes for growth. But these look well founded. Buy.

Pearson

Thanks to its ownership of Penguin and the Financial Times, Pearson can always rely on winning a high profile in media and City circles. Yet while the fortunes of these trophy assets may always excite the biggest interest among casual observers, it is the fortunes of the educational book publishing division that underpins or undermines investor hopes for the shares.

Dame Marjorie Scardino, the chief executive of Pearson, reported that all the businesses traded well in the fourth quarter. The company has clearly worked hard to maximise the opportunity in education: partly through acquisition, partly through spending on information technology infrastructure. It seems that the company is also drawing benefit from the phasing of expenditure by individual states on teaching materials. The risk is that the so-called “adoption cycle” is helping, perhaps even flattering, Pearson at present. Since shares are trading on a punchy p/e multiple of 20, investors may need some reassurance. Hold.