Are these the FTSE 100’s most undervalued stocks?

Royston Wild looks at three Footsie stars offering brilliant value for money.

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While a 10% share price surge during the past month has taken WPP (LSE: WPP) within reach of fresh record peaks, I reckon the advertising giant still provides plenty of bang for your buck.

The company continues to report splendid revenues growth across the world, and is building its global presence to keep the business rolling in. Over the past month alone WPP has snapped up Canadian healthcare and consumer agency Tank, as well as a majority stake in Brazilian digital marketing firm Pmweb.

The City certainly expects WPP’s bottom line to continue climbing, a predicted 14% earnings advance for 2017 is expected to follow a 17% rise last year. And this results in a P/E ratio of 14.5 times, just below the widely-regarded value yardstick of 15 times, as well as a PEG reading bang on the value watermark of one.

And the ad play also provides plenty of lucre for income investors, too — a predicted 62.8p per share dividend yields a chunky 3.5%.

Contract winner

Unlike WPP, investor appetite for Babcock International (LSE: BAB) remains much more subdued, and the support services play continues to trade some way off February 2014’s record highs.

But I believe Babcock is long overdue for an upward share price correction. The company has a strong record of securing both new and renewed business opportunities, and has a robust order book of some £20bn to keep revenues rolling in.

And just today Babcock announced a €500m, 11-year contract to supply new training aircraft, related simulators and modernised training facilities to the French air force.

Babcock’s mega-low P/E ratios certainly leave room for a positive re-rating, in my opinion, with anticipated earnings rises of 8% in both the years to March 2017 and 2018 resulting in multiples of 11.9 times and 11 times.

While dividends for this period may not be as compelling — predicted dividends of 28.9p and 30.2p per share for fiscal 2017 and 2018 yield 2.9% and 3.2% respectively — I believe Babcock is one of the strongest growth dividend stocks out there.

Mail mammoth

While the implications of Brexit have undoubtedly raised the stakes for Royal Mail (LSE: RMG), I reckon it could be argued these concerns are baked-in at present levels.

The City expects earnings to slip just 1% in the period to March 2017 as competitive pressures weigh, resulting in an ultra-cheap P/E ratio of 11.1 times. But the impact of heavy restructuring, combined with rising parcels volumes, is expected to power earnings higher again beyond the current period, starting with a 2% rise in fiscal 2018. This creates a P/E ratio of just 10.9 times.

And irrespective of any near-term profits pressure, Royal Mail is expected to retain its position as one of the Footsie’s more generous dividend stocks. Projected dividends of 22.8p and 23.8p per share this year and next yield 5% and 5.2%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild 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.

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