Barratt isn’t the only share that could beat the FTSE 100

A number of shares including Barratt Developments plc (LON: BDEV) could be good value compared to the FTSE 100 (INDEXFTSE: UKX).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the FTSE 100 trading close to a record high, many investors may feel that now is not the time to buy any shares. After all, they may argue that there are unlikely to be wide margins of safety on offer at the present time.

However, the reality is that there are a number of cheap stocks available right now. Housebuilder Barratt (LSE: BDEV) is one such company, with its growth potential apparently not being fully factored into its valuation. And with another smaller growth stock reporting positive results on Monday, there could be opportunities for investors to outperform the FTSE 100.

Low valuation

In the last five years, Barratt has delivered positive earnings growth in every year. It has been able to improve the quality of its balance sheet, pay increasing dividends and develop a large land bank which should provide growth for many years to come. However, investors continue to view the stock negatively, with it having a price-to-earnings (P/E) ratio of around 9 at the present time.

The reason for this could be a general slowdown in the UK housing market. House prices have come under pressure in recent months in various parts of the UK. However, the fact is that housebuilders are not being severely affected so far. Demand for new homes is being buoyed by low interest rates and the Help to Buy scheme – both of which are expected to remain in place over the medium term.

As such, with Barratt due to report a 5% rise in earnings in the current financial year, it could offer a wide margin of safety. Although its shares could experience a period of uncertainty during the Brexit process, they are dirt cheap and may deliver far stronger performance than the FTSE 100.

Growth at a reasonable price

Also offering a relatively low valuation is bakery manufacturer Finsbury Food (LSE: FIF). The company reported a trading update on Monday for the year to 30 June 2018 which showed that sales revenue moved 2.4% higher on a like-for-like (LFL) basis. It stood at £290.2m for the full year, with profits set to be in line with market expectations.

This was a strong performance in what has been a tough environment. Inflationary pressure has remained high, but the company’s investment in prior periods has helped it to offset this to some degree. It anticipates that the UK economic environment will remain challenging. However, with a robust balance sheet and further efficiencies set to be made, it seems to be in a strong position to deliver growth.

Looking ahead to the current financial year, Finsbury Food is forecast to post a rise in earnings of 9%. With its shares trading on a price-to-earnings growth (PEG) ratio of 1.3, it seems to offer good value for money. As such, now could be the perfect time to buy them for the long term.

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.

Peter Stephens owns shares of Barratt Developments. 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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

1 Warren Buffett stock I’m buying now

Coca-Cola is the fourth-largest holding in Warren Buffett’s Berkshire Hathaway. I’ll explain why I’m following Buffett and buying more.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I bought 4,403 Lloyds shares in June and 4,856 in September. Here’s what they’re worth now

Harvey Jones thought he was bagging a FTSE 100 bargain when he bought Lloyds shares on two occasions last year.…

Read more »

Young woman holding up three fingers
Investing Articles

I’m itching to buy these 3 hidden FTSE gems in a Stocks and Shares ISA

Harvey Jones is keen to add these three FTSE 100 companies to his Stocks and Shares ISA before April. Only…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

How I’d try and turn just £1 a day into a fabulous £54,485 passive income for life

By investing small, regular sums in FTSE 100 shares I can potentially generate a huge passive income stream. It won't…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d aim for a million buying under a dozen shares

Christopher Ruane explains why less could be more when it comes to building a share portfolio if he wants to…

Read more »

Investing Articles

Rolls-Royce shares are up over 1,000% since 2020! Am I too late to buy?

Rolls-Royce shares now cost over tenfold what they did in the firm's 2020 rights issue. Our writer thinks they may…

Read more »

Investing Articles

1 top UK growth stock for my tech portfolio in 2024

Up 30% in just one year, this growth stock looks positioned to continue on the path of substantial gains, according…

Read more »

Buffett at the BRK AGM
Investing Articles

I’d follow Warren Buffett to target effortless passive income

Warren Buffett knows a thing or two about building passive income streams. By learning from the Sage of Omaha, so…

Read more »