Two FTSE 100 stocks stand out as offering value in the current environment — 3i Group (LSE: III) and DS Smith (LSE: SMDS).
FTSE 100 stocks on offer
3i is one of the most interesting FTSE 100 stocks. The company is an investment business that has two primary business divisions. These include the company’s private equity business and infrastructure division.
Both of these units are, to some extent, protected from the coronavirus crisis.
Some businesses in 3i’s private equity portfolio will see a drop off in demand due to the crisis. However, the portfolio is well-diversified. And what’s more, the group’s most substantial private equity investment is a 49% stake in discount retailer Action.
Action saw like-for-like sales growth of 5.6% in 2019 and was recently valued at €10.3bn.
Action is one of the few core businesses that is still allowed to operate in Europe at this challenging time. That should help support the firm’s valuation.
On top of this, 3i’s infrastructure business owns stakes in some critical assets. These include telecommunications networks, pipelines, hospitals and schools and airports. It’s unlikely that the business will have to write off any of these assets as a result of the coronavirus crisis.
So, 3i’s business portfolio should hold up well over the next few months, unlike many other FTSE 100 stocks. The company also has plenty of liquidity to take advantage of any opportunities if they emerge.
In a recent trading update, the business said that it was on track to have a cash balance of £800m at the end of March.
Considering all of the above, it could be worth taking a look at 3i after recent declines.
Shares in the investment business are trading at a price-to-book (P/B) ratio of 0.9, which suggests they offer a wide margin of safety at current levels.
Unaffected
DS Smith has to be one of the only FTSE 100 stocks that have not been affected by the crisis just yet.
In a recent trading update, the company said the impact of Cobvid-19 on operations is “limited.” And it added that “corrugated box volumes have continued to be good.” And other parts of the business are also trading ahead of last year on a like-for-like basis.
It’s still too early to tell what the final impact on the group will be, of course. But it looks like DS Smith is coping well in the current environment. That suggests the stock could be an attractive investment at current levels. It’s currently dealing at a forward price-to-earnings (P/E) multiple of 8.9.
Management is cancelling the dividend for the foreseeable future. That’s designed to help preserve liquidity and ensure the company can take whatever the market throws at it. Directors are also waiving their rights to an annual bonus for the current year.
While its trading update suggests that the business is on track to meet full-year growth expectations, these actions should help strengthen the group’s balance sheet.
All of the above suggests to me that DS could be a good investment in the current market.
