£2,000 to invest? I’d buy these 2 dirt cheap FTSE 100 income growth stocks

I think these are some of the most undervalued stocks in the FTSE 100 (INDEXFTSE:UKX).

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If you have £2,000 to invest today, but don’t know where to start, I highly recommend blue-chip FTSE 100 stocks. And there are two companies I believe offer better value than most right now.

Booming industry

Carnival (LSE: CCL) is the world’s largest cruise ship and travel operator with more than 100 vessels sailing around the globe.

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However, its shares have recently sailed into stormy seas. Following a series of disappointing trading updates, the stock is down by nearly 40% from its five-year high of 5,340p printed at the end of 2017.

But despite this turbulence, I believe the long term outlook for this business is extremely positive. The cruise industry is booming, and companies can’t build enough ships to manage the demand. 2019 will be a record year for passenger numbers and new boat launches. But even with more than 30m passengers travelling throughout the year, the sector will still only be a fraction of the total global tourist market’s size.

The best bet

In my opinion, Carnival is the best business to play the cruise industry’s unrelenting growth. Over the past five years, as the company has spent billions of dollars on new vessels, earnings per share have risen at a compound annual rate of around 26%. Net profit has also jumped threefold, from approximately $1bn to $3.1bn for 2018.

Today, investors can snap up this growth at a bargain basement valuation of just 9.4 times forward earnings, which is a steal in my eyes. What’s more, the stock supports a dividend yield of 4.8%, and a payout has grown by 80% over the past four years. Management has also commissioned a share buy-back policy to return additional cash to investors.

So overall, if you’re looking for undervalued income stock with a globally recognisable brand and a long runway for growth ahead, Carnival ticks all the boxes.

Undervalued

Like Carnival, shares in ITV (LSE: ITV) have also taken a hammering recently. The stock is currently changing hands at a price 40% below its 52-week high.

However, I also think the market is missing something here. Investors have been keen to sell shares in ITV as the company’s growth prospects have dwindled. Analysts are forecasting a 6.7% decline in earnings per share for this year.

But despite this contraction, the underlying business remains strong and is throwing off a tremendous amount of cash. In 2018 for example, ITV generated free cash flow from operations of £382m, easily covering the £315m dividend distribution to investors while leaving plenty of headroom to reduce debt.

Based on these numbers, even if ITV doesn’t grow for the next few years, it looks as if the current 7.3% dividend yield is safe for the time being. That’s why I think this could be one of the best income stocks in the FTSE 100.

Also, shares in the broadcaster are currently changing hands at just 8.5 times forward earnings, a multiple I believe substantially undervalues of the company. However, it could be some time before investors are willing to place a higher multiple on the business. When they do, I think the re-rating could be substantial.

Historically, shares in ITV have tended to change hands for around 15-20 times forward earnings. That’s why I think this investment could be worth your cash today.

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Rupert Hargreaves owns shares in ITV and Carnival. The Motley Fool UK has recommended Carnival and ITV. 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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