Economic volatility has many FTSE100 stocks lately. The good news for investors like me is that there are now many top quality stocks in the UK’s main index trading at a discount.
Two tips I have in mind are Standard Chartered (LSE: STAN) and Barratt Developments (LSE: BDEV).
I’d like to buy some shares of both stocks next time I have some money left before they go up. Here’s why.
Standard Chartered
Many financial services stocks have struggled recently, as global volatility and runaway inflation have taken their toll. Geopolitical issues have not helped either.
Asia-focused banks like Standard Chartered have also suffered from the economic problems in China, one of the world’s largest economies. This is one of the biggest risks I need to keep an eye on as I am bullish on the stock. The lower-than-expected growth in the country has hit many industries hard and could hurt Standard Chartered’s earnings and returns going forward.
On the other hand, however, there is a pretty compelling investment case for me from a long-term perspective. First, the shares look dirt cheap to me based on two key metrics. The shares are trading at a price-to-earnings ratio of just over six. Based on the price-to-book (P/B) ratio, a value of 0.6 indicates value, while values below one can indicate this.
Valuation aside, the shares currently offer a dividend yield of just under 3%. While I realize dividends are never guaranteed, the possibility of passive income makes investing worthwhile.
Finally, it is Standard Chartered’s growth potential that excites me most. Given its well-established presence in Asia and the possibility that its services will be in high demand due to a growing population and increasing personal wealth, the signs for the future are positive. Standard Chartered’s earnings and returns could soar. I can also see its shares rising as well, providing capital growth as well.
Barratt Developments
Like the financial services sector, the real estate market is in crisis due to high inflation, high interest rates and the cost of living crisis. Due to these problems, completions, sales and margins have come under pressure.
From a pessimistic perspective, persistent inflation could pose a risk to the profits and earnings of Barratt and other construction companies in the future. This is because the Bank of England may not cut interest rates, which could attract new buyers and boost the market generally. I will keep an eye on this going forward.
From an optimistic perspective, demand for homes in the UK exceeds supply and, with the population growing rapidly, this demand must be met, providing Barratt with the opportunity to increase both yields and returns in the coming years.
In addition, Barratt’s market position as the UK’s largest residential developer is hard to ignore. The company has the presence, expertise and track record to capitalise on the positive sentiment.
Finally, the shares seem cheap to me. In this case, a different metric is used: Barratt shares trade at a price-earnings-growth (PEG) ratio of 0.7. Similar to the P/B ratio, a value below one indicates good value for money. In addition, a healthy dividend yield of almost 6% makes the investment more attractive. I can imagine this also increasing over time.
The post “2 dirt-cheap FTSE 100 stocks I’d buy before they skyrocket!” appeared first on The Motley Fool UK.
Further reading
Sumayya Mansoor does not own any of the stocks mentioned. The Motley Fool UK has recommended Standard Chartered 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.
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