Even though the FTSE 100 is within touching distance of 7,000 points, there are several risks that could cause the index’s price level to head south in the short term, with the UK General Election, challenges involving Greece and the Eurozone, as well as further volatility in Ukraine and the Middle East all having the potential to hurt investor sentiment.
But for long term investors there are a number of great value stocks available that could make a real difference to your portfolio returns.
Great Value
Barclays (LSE: BARC) (NYSE: BCS.US) and Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US) both trade on very appealing valuations, with them having price to earnings (P/E) ratios of just 10 and 14 respectively. And, with the FTSE 100 trading on a P/E ratio of 15.9, both companies seem to offer great value and the potential for an upward re-rating over the medium to long term.
Income Prospects
Their appealing value can also be seen in their dividend yields, with both Barclays and Centrica having top notch shareholder payout levels. For example, Barclays currently yields a respectable 3.6%, while Centrica’s yield is a staggering 5.9%, and both could boost your income during the course of the year.
And with dividends forecast to rise by 31.5% (Barclays) and 1.9% (Centrica) next year, they should provide a real-term increase in income over the short to medium term. As a result, their share prices could benefit from higher demand from income seeking investors who will be left with even lower savings rates should the Bank of England decide to cut interest rates in response to a period of deflation.
Potential Catalysts
And it’s not just their high yields that could act as potential catalysts to push their share prices higher — both Barclays and Centrica could also benefit from improved financial performance.
For example, Centrica has a relatively new management team that is likely to make changes to its long-term strategy , with the aim of diversifying its operations as much as possible.
And Barclays’ renewed focus on becoming more efficient and rationalising its balance sheet could equate to a higher return on equity and greater profitability.
Looking Ahead
While Barclays and Centrica are undoubtedly both bargain stocks, that is perhaps an unfair way of describing them. That’s because they are both high quality businesses that have very bright futures and, as a result, appear to be two of the best buys in the FTSE 100 at the present time.
