As we head into 2014, the FTSE 100 is 90% higher than it was in March 2009, when it hit a low of 3,530.
During the course of this five-year bull run, the markets have squeezed out most of the obvious value from the market, but I’ve identified three companies that I think look cheap at the moment and could outperform the market in 2014.
Anglo American
Anglo American (LSE: AAL) (NASDAQOTH: AAUKY.US) is the smallest of the big three London-listed miners, but I think it could outperform its larger peers in 2014.
Anglo presented its turnaround strategy to investors in December, and I believe this plan will start to deliver results over the next 12-18 months, which could trigger a re-rating of the firm’s share price.
Anglo’s capex commitments should peak this year and fall in 2015, boosting profits, and the miner’s forecast P/E of 10.5 and 4% prospective yield look good value to me.
RSA Insurance Group
Early in December, I said that RSA Insurance Group (LSE: RSA) (NASDAQOTH: RSNAY.US) could be a buy if its share price fell below 95p. Shortly after this, the firm’s share price obligingly fell to around 91p, where it remains, at a discount of nearly 8% to RSA’s net asset value of 99p per share.
RSA’s troubles last year were caused by accounting problems and adverse weather losses. However, the firm reported 7% premium growth during the first nine months of 2013, and I believe that RSA could outperform the FTSE this year, as investors regain confidence in the company’s operations.
Debenhams
Debenhams (LSE: DEB) shareholders have seen the value of their stock fall by 37% to just 76p over the last 12 months.
The stock’s most recent slide came on New Year’s Eve, when Debenhams said that it had not experienced the “final surge in sales” it had expected before Christmas, and would have to discount stock more heavily than planned during January and February, hitting profits.
This wasn’t great news, but it’s left the firm looking unusually cheap. Debenhams now trades on just 8.4 times forecast profits, has relatively low debt levels, and offers a 4.4% prospective yield, which should just about be covered by free cash flow.
I reckon Debenhams looks cheap enough to cancel out any further risks, and could bounce back strongly during 2014, especially if the economy continues to recover, as expected.
