The FTSE 100 is currently bouncing around its all-time high but not all companies within the index have seen their share prices rise follow suit.
For example, the FTSE 100’s recent performance has been driven by the prospect of deal activity within the biotechnology sector. Companies like AstraZeneca and Shire have seen their share prices surge to new highs, while FTSE 100 stalwarts like Tesco, have seen their share prices crash.
However, for the savvy Foolish investors this an opportunity to profit from undervalued companies and here are three plays.
Left Behind
BHP Billiton (LSE: BLT) (NYSE: BBL.US) appears to be left out of the market’s wider rally, as investors remain cautious around the mining industry.
However, BHP’s management is working hard to improve the company’s prospects and reputation. Indeed, management has changed BHP’s strategy, slowed plans for growth and ramped up production at existing mines. The company is targeting cost efficiencies totalling $5.5bn by the end of the 2014 and the extra cash generated it earmarked to paydown debt.
Further, there have been some rumors that BHP could be looking to hive off the company’s low-margin ‘Billiton’ part of the business, acquired several years ago. No deal has been put forward yet, although if a deal were to go ahead, it is likely the cash would be returned to investors.
Long-term growth
It would appear that GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) has also been left out of the wider market’s rally, but I can’t figure out why.
Glaxo has been working hard during the past few months to improve the company’s long-term outlook. In particular, the company’s R&D boffins have brought a total of seven new drugs to market within the past 16 months.
What’s more, the company’s recent deal with peer, Novartis will see the consumer divisions of Glaxo and Novartis merge, creating a ‘world-leading’ consumer healthcare business with £6.5bn in revenue reported for 2013. Additionally, Novartis agreed to buy Glaxo’s portfolio of cancer drugs for as much as $16 billion while selling most of its own vaccines division to Glaxo for $7.1 billion.
As a result of this deal, Glaxo is returning £4bn to investors, this cash return is in addition to the company’s existing 4.8% dividend yield.
Currently, Glaxo trades at a forward P/E of 15.5, which seems expensive. That said, the wider biotech sector currently trades at an average P/E of 17.5 and only offers a 3.8% yield.
Emerging profits
Still, if neither Glaxo nor BHP look attractive, there is one final option; emerging markets.
Emerging market equities have vastly underperformed against their developed peers during recent years and this underperformance has only worsened in the past few months. However, valuations are now extremely low overseas and the long-term growth story remains in-tact.
One of the best ways to play emerging markets is through a fund and the Templeton Emerging Markets Inv Trust (LSE: TEM) is a great pick. Indeed, the fund’s top five holdings give investors exposure to three of the world’s fastest growing economies: China, India and Brazil.
