Today, the FTSE 100 is trading at around 7,700, just below its all-time high of 7,877. This high level might put some investors off, but below the surface, there are still plenty of bargains to be had.
Here are two such companies that I believe deserve your cash.
Tech boom
Here in the UK, we have few genuine, home-grown tech champions. Unlike in the US, where internet giants such as Facebook and Amazon are based, you can count the number of tech giants included in the FTSE 100 on one hand.
Just Eat (LSE: JE) is one of these select few. Over the past five years, this takeaway app business has exploded in size, and it looks as if the group’s growth is only just getting started.
This year, analysts are forecasting revenues of £721m, up more than 10-fold from the £60m reported for 2012, a figure that’s even more impressive when you consider that in 2012, Just Eat wasn’t profitable. For fiscal 2018 the City has pencilled in net profits for £126m rising to £166m for 2019.
With EPS set to double over the next two years, I would expect the shares to have a high price tag, which they do. Shares in Just Eat are currently trading at a forward P/E of 47, falling to 36 next year.
While this is a high multiple to pay, when you factor in growth, the stock is not too dear. The PEG ratio for 2019 is just 1.1. However, what I’m excited about is Just Eat’s cash generation.
The tech business is a cash machine. It generated £167m of cash last year on a net income of -£73m (or £116m after stripping out non-cash charges). Just Eat has virtually no capital spending commitments so this cash goes straight into its bank accounts. Net cash of £264m is worth 39p per share. At some point in the future, I believe these funds will be returned to investors. In other words, Just Eat has the potential to be both a growth and income champion.
Deep discount
My second pick is banking group Barclays (LSE: BARC). The first thing that stands out to me is the stock’s valuation. Based on current City estimates, shares in Barclays are currently trading at just 60% of tangible book value and at a multiple of 8.7 times forward earnings. There’s also a 4.1% forward dividend yield on offer.
It is often the case that companies deserve their low valuations due to growth or other concerns. This does not seem to be the case here. Barclays has struggled since the financial crisis, although in 2018 analysts are expecting a pickup in profitability. Net profit could hit £3.3bn, the highest level in over six years.
I’m cautious on whether or not the company can meet these targets, especially given its history. Nonetheless, the stock’s current valuation provides a wide margin of safety if Barclays does no grow as expected. Moreover, the bank has been the target of multiple takeovers as well as merger rumours in recent months, which I’m not surprised about considering the firm is trading a just over half its book value.
Whether it is a takeover or growth that unlocks value, Barclays’ investors could be well rewarded.
