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2 low P/E stocks I’d buy and hold for the next 10 years

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With the stock market trading near record highs, there are many shares looking shockingly expensive by their historical valuations. However, not all shares have performed as strongly and finding value opportunities in today’s market doesn’t have to be challenging. Sometimes, value stocks are just sitting right out in the open, which I believe is the case for Africa-focused financial services company Old Mutual (LSE: OML).

Shares in the FTSE 100 company are down 5% year-to-date against a tough political and economic backdrop in South Africa, but I reckon the stock has been oversold as a major restructuring could help its shares push into higher ground.

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Managed separation

The group is going through a “managed separation” which will see it split along its four underlying businesses: asset management, wealth management, insurance and banking. This strategy has the potential to unlock value for shareholders, as the value of its individual business units could be significantly more than the company as a whole.

With its shares trading at just 9.1 times its expected underlying earnings this year, a conglomerate discount seems to explain the valuation gap between itself and sector peers. What’s more, asset realisations allow the group to sell of its more highly-valued asset management business, locking in high prices in order to recycle capital to invest in its core emerging markets business.

Breaking up could bring long-term benefits too, as having standalone units enables each business to focus on what’s best for itself without being troubled about the broader impact on the larger group. The removal of central operational and debt costs is also expected to deliver annualised cost savings of £31m.

Meanwhile, City analysts may previously have been too pessimistic about Old Mutual’s near-term growth prospects as they’ve hastily revised their expectations upwards in recent months. The current consensus analysts’ forecast for underlying earnings per share in 2017 is 21.5p, up from 20.1p a year ago.

Dividend growth

Shares in infrastructure group John Laing Group (LSE: JLG) haven’t fared much better. After the company announced a £25.5m writedown on its long-troubled Greater Manchester Waste project in August, shares in the company have since lost more than 15% of their value.

The writedown was bigger than many analysts had previously expected, meaning the company would expect to earn a much smaller profit from the investment than it had earlier forecast. But although the Manchester project is one of its biggest single investments, representing roughly 8% of its investment portfolio at the end of 2016, it is only one of many.

Taken together, the company said its portfolio was performing “in line with expectations”. As such, the firm’s net asset value (NAV) has continued to trend upwards, with a 2.5% gain in the six months to the end of June, demonstrating its still-attractive outlook for long-term value creation.

Looking ahead, further growth seems likely as the global need for infrastructure is growing fast and governments are increasingly turning to the private sector for investment. Reassuringly, John Laing has a strong pipeline of investment opportunities in place, with commitments to date of £340m, well ahead of its original guidance for 2017 of approximately £200m.

But despite the upbeat outlook, John Laing currently trades at a forward P/E of just 7.6.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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