The FTSE100has risen by around 6% so far this year. This is mainly due to the increased buying interest of value investors.
Even factoring in these recent gains, the Footsie has lagged other major global equity indices for several years, meaning many of the UK’s major blue-chip stocks can still be bought at rock-bottom prices.
However, some large-cap companies are cheap for a reason, and investors need to be careful to avoid them like the plague.
Take the following FTSE 100 shares, for example. Are they a brilliant bargain or could they prove to be an investor trap?
Barclays
At the moment, Barclays (LSE:BARC) shares offer excellent total value potential, at least on paper. The retail bank trades at a price-to-earnings ratio (P/E) of 6.7. At the same time, the dividend yield for this year is an attractive 4.1%.
Barclays’ US business could offer the group excellent opportunities for increasing profits. The company also has a significant investment bank.
However, the company also relies on a strong UK economy to grow its profits. In 2023, domestic banking and credit card operations accounted for almost 40% of the group’s profits. This worries me, given the huge structural problems that are holding back UK GDP growth.
So I still have serious concerns about buying shares in the company. But that’s not my only concern.
I am also put off by the increasing competitive pressure the bank is facing worldwide. Challenger bank Revolut announced on Tuesday (July 2) that the number of its retail customers will increase by 45% to 38 million by 2023.
The company’s ability to lure customers away from established banks like Barclays will also increase if, as expected, Revolut receives a UK banking license in the near future. With fintech companies going public in large numbers, the banking landscape could soon change significantly.
WPP
Of course, no stock investment is completely risk-free. But in the case of WPP (LSE:WPP), I believe the potential gains outweigh the risks it poses to investors.
The advertising agency has had its fair share of problems recently. Weak investment in the US technology sector – combined with the impact of the economic slowdown in China – remains a threat.
The same applies to the way companies advertise their goods and services. More and more companies are moving their marketing activities in-house. Some PR specialists are also pulling their tanks onto WPP’s turf by offering advertising services.
Nevertheless, I am convinced that WPP has significant investment potential. As the company operates in over 100 countries, it has considerable opportunities to take advantage of the rapid economic growth in emerging markets. Increasing investment in digital advertising and e-commerce also puts it well-positioned for the digital revolution.
Finally, WPP has expertise in many areas, including advertising, public relations and brand consulting, making the company a trusted and reliable provider of end-to-end services to some of the world’s largest companies.
Like Barclays, WPP shares offer solid value on paper. They trade at a P/E ratio of 8 and have a dividend yield of 5.3%. If I have money left over to invest in July, I will consider buying this stock.
The post “2 dirt-cheap FTSE 100 stocks! Which ones should I buy in July?” first appeared on The Motley Fool UK.
Further reading
Royston Wild does not own any of the stocks mentioned. The Motley Fool UK has recommended Barclays Plc. The views expressed on companies mentioned in this article are those of the author and may therefore 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 2024
