My call on these cheap FTSE 100 shares has been right so far. I think there’s more to come!

Paul Summers saw value in FTSE 100 (INDEXFTSE:UKX) shares Whitbread plc (LON:WTB) and ITV plc (LON:ITV) back in July and remains bullish on both.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Back in July, I suggested that shares in then-FTSE 100 broadcaster ITV (LSE: ITV) and Premier Inn owner Whitbread (LSE: WTB) looked too cheap. Since then, they’ve soared 45% and 35% respectively. I suspect there’s more to come, which makes me happy as I’m an ITV shareholder.

Back in business

The fact that ITV plummeted in value earlier in the year (and is now in the FTSE 250) wasn’t hard to fathom. Reduced advertising revenue coupled with no filming at its Studios arm motivated investors to run for the exits. Clearly, the recent good news surrounding potential coronavirus vaccines has improved sentiment towards most stocks in general. That includes ITV. 

But it’s more than that. In its most recent update, CEO Carolyn McCall said the broadcaster had seen “encouraging signs” in both of its divisions. Advertising trends were recovering, with year-on-year Q4 numbers likely to be “slightly up“. Most (85%) of its productions had also resumed filming. Elsewhere, Britbox seems to be doing well enough. And the international rollout of the streaming service is “on track“.

Of course, there are still hurdles ahead. The second national lockdown will have undoubtedly hurt revenue and increased costs. And as things stand, there’s no guarantee that restrictions will be lifted on 2 December. With no dividends in sight, ITV is unlikely to be on many income investors’ wishlists.

Even so, I think a lot of this negativity is priced in. Assuming earnings really do recover strongly next year, shares in ITV still trade on a forward P/E of just 9. That could prove a bargain once the £4bn-cap completes its digital transformation. Those perennial takeover rumours could also gather pace if it’s successful in attracting “younger and harder to reach viewers” to its channels.

Growing market share

Like ITV, Whitbread’s shares sank in March. They were hit by travel restrictions that impacted hotel bookings. Also like ITV, it’s benefited from a return of optimism to global markets.

Whitbread has also been boosted by a bullish call from investment banks Goldman Sachs. It thinks the company is well-positioned for a post-pandemic recovery given its focus on the domestic travel market. It has upgraded the stock to a ‘buy’ from a ‘sell’. And the bank also suggested the FTSE 100 member has an opportunity to take market share from competitors.

I’m inclined to agree. Last month, CEO Alison Brittain said the company’s performance since reopening its hotels and restaurants after the first lockdown had been “encouraging“. Importantly, Whitbread was also continuing to trade “ahead of the market“, she said. Yes, it’s the biggest and best-known player in the UK, but that’s still a major achievement. 

Thanks to its £1bn cash call earlier in 2020, the business is likely to weather the ongoing coronavirus storm better than rivals. A stronger balance sheet will also allow it to grow its presence in Germany more quickly. In fact, it announced the capture of “up to 15 more hotels” in the country last month. This brings its total network to almost 70.

Similar to other FTSE 100 stocks, Whitbread’s shares generate no income at present. For capital gains-focused value investors, however, there’s surely more upside ahead. Despite recent positive momentum, the shares are still nearly 30% lower in value than where they were at the start of 2020! I’m keeping an eye on this one.

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.

Paul Summers owns shares of ITV. The Motley Fool UK has recommended 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.

More on Investing Articles

Young black man looking at phone while on the London Overground
Investing Articles

Investing £3.33 into an ISA every day from 22 could result in a £60,000 passive income

Millions of Britons use the Stocks and Shares ISA as a way to build wealth and generate an income. However,…

Read more »

Investing Articles

2 resurgent cheap shares that could skyrocket in 2025

Cheap shares can take our portfolios to the next level. Here, Dr James Fox highlights two stocks that appear to…

Read more »

Investing Articles

How much does an investor need in a Stocks and Shares ISA to earn £1,000 a month in passive income?

A Stocks and Shares ISA's a valuable asset for investors. Not having to pay dividend tax can be a big…

Read more »

Investing Articles

9% dividend yield! Could buying this FTSE 250 stock earn me massive passive income?

Assura looks like an outstanding stock for dividend investors to consider. But is the 9% dividend yield the passive income…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Why I think this month could be critical for the Lloyds share price!

Our writer explains why he thinks the bank's 2024 results will have a significant impact on the short-term direction of…

Read more »

British Pennies on a Pound Note
Investing Articles

This former penny share has soared 168%. Is the best yet to come?

When Christopher Ruane saw a penny share as a potential bargain last year, he was spot on. So having not…

Read more »

Mature couple at the beach
Investing Articles

£20k in an ISA? Here’s how it could generate £1 of passive income every hour — forever

With a long-term approach, Christopher Ruane explains how an investor could aim to earn a pound per hour in passive…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: overpriced or still a bargain?

Christopher Ruane reckons a storming FTSE 100 performance of late doesn't tell us much about whether there are still possible…

Read more »