For some weeks now, I have been coming up against the same problem when selecting stocks to buy. The problem is that stocks have become pricey as the stock markets have run up. But there are still ways to come by relatively cheap FTSE 100 shares.
The price-to-earnings (P/E) ratio is my quick and easy go-to method to assess how stocks compare to each other. Based on this, I have picked three cheap FTSE 100 shares that I think are still cheap and can grow my capital too.
#1. Aviva: rising share price
Insurance biggie Aviva has a P/E of 5.6 times despite its pretty much consistent rise in share price over the past year. Investors gave its latest results a thumbs up too, with a share price increase of 2%.
Its general insurance premiums for the first quarter of 2021 increased by 4% and life insurance stayed steady. It is also in the process of streamlining its operations, with the sale of non-core businesses. It also has a good dividend yield of 5.1%. In other words, it is both a growth and an income stock for me.
#2. Segro: online sales’ boost
The FTSE 100 real estate investment trust Segro has a P/E ratio of 8.4 times. It made gains last year because it specialises in warehouses, which saw particularly increased demand as lockdowns rapidly increased online sales. The company has also reported a good start to 2021, with “strong occupier demand” for the period from January to April 2021.
I am a believer in the long-term potential of the online sales industry. E-commerce is supported by an ecosystem that includes packaging providers and warehousers. It follows that growth in e-commerce will also give them a fillip.
#3. Rio Tinto: supported by the commodity supercycle
Industrial metals miner Rio Tinto has a P/E of 14.2, so admittedly it is not among the cheapest. But it is far from being the priciest FTSE 100 share today either.
I like it for a couple of reasons. One, the company has had a good past year, as commodity prices rose on increasing demand from China. In a year when many companies have suffered, Rio Tinto has actually done well. Two, industrial metals prices are expected to stay strong through this decade, at least according to one view. I think with economies on the rebound and high expected infrastructure spending underway, there can be some water to it. This means that Rio Tinto can continue to gain.
Three, its dividend yield is strong at 5.4%. Which, like Aviva, makes it both a growth and an income stock.
The catch and takeaway for cheap FTSE 100 shares
While all these stocks look good, the idea that their share prices can rise from here is based on the underlying assumption that they will continue to perform. That may not hold. Aviva’s share price trends were underwhelming before their recovery in 2020. Online sales could come off faster than expected as lockdowns end, which would impact Segro. Commodity prices too, could fall if spending slows down, affecting Rio Tinto.
All things considered, though, I like these cheap FTSE 100 shares for my portfolio.
