The likes of Lloyds, Tesco, BP and Vodafone are popular stocks with private investors.

But today, I’m looking at three less favoured companies of the FTSE 100. I believe all three merit closer inspection by investors, for each has ‘secret’ attractions that may be easily overlooked.

Far from a poor relation

Why invest in the UK’s number four supermarket Morrisons (LSE: MRW) when you can buy king of the sector Tesco?

A strong balance sheet is one of the first things I look for in a prospective investment. Morrisons owns the freehold on 85% of its property and has a pension surplus. Tesco owns the freehold on just 47% of its UK property and has a pension deficit. Factoring in the debt in these areas, Morrisons’ gearing is a fairly conservative 65%, but Tesco’s is a whopping 180%.

Rent and pension obligations don’t just impact on a company’s financial strength, but also cash flows. Morrisons annual rent bill is running at just £119m, but Tesco has cash-flow-corrosive rent costs of £1,296m, as well having to fork out £270m a year to fund its pension deficit.

You get an idea of the benefit to Morrisons by looking at the companies’ latest free cash flow numbers. Tesco, with revenue of £54.4bn, posted free cash flow of £1.09bn. Morrisons posted slightly lower free cash flow of £0.85bn, but that was on revenue of just £16.1bn.

Morrisons is far from the poor relation that its number four position in the market might suggest, and trading on a forward P/E of 19, compared with Tesco’s 24, appears worthy of closer inspection by investors.

A bigger picture

Why invest in Associated British Foods (LSE: ABF) on a forward P/E of 29 when you can buy popular consumer goods powerhouse Unilever on a P/E of 21?

I would say why indeed, but for the fact that ABF is more than a groceries, ingredients, sugar and animal feeds producer. Its biggest business is the mighty Primark. Now, it’s certainly arguable that a P/E of 29 is still way too high, but there is a bigger picture than short-term earnings here.

Primark stores currently number around 300, across 10 territories. This footprint is almost identical to that of H&M two-and-a-bit decades ago. Today, H&M has close to 4,000 stores in over 60 territories. If Primark can be even half as successful as that — and I believe there’s every indication it can — ABF’s current P/E will mean little against the magnitude of returns for investors.

Cheaper than it looks

Why invest in asset manager Schroders (LSE: SDR) on a forward P/E of 15 with a dividend yield of 3.5% when there are any number of blue-chip financials on lower earnings ratings and offering higher yields?

Well, aside from the fact that Schroders has a history stretching back over 200 years, and is a high-quality, conservatively-managed business — there was no dividend cut during the financial crisis, for example — there is an attraction some investors may be unaware of. Schroders has a second class of share: Schroders NV, which has the ticker SDRC. The ‘NV’ stands for non-voting, but apart from the voting rights the two classes of share have the same entitlements.

The NV shares typically trade at a discount, and right now the discount is near to 24%, which is at the wider end of the historical range. The forward P/E on the NV shares is a far more attractive 11.5, and the dividend yield is a superior 4.5%. On this valuation the Schroders NV shares make for an appealing buy, in my view.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.