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2 dirt-cheap FTSE 100 shares I’d buy now

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While the FTSE 100 index has had a great run this year, there are still plenty of Footsie shares that have low valuations. Believe it or not, around a fifth of the shares within the index still have forward-looking price-to-earnings (P/E) ratios of less than 10.

Here, I’m going to highlight two dirt-cheap FTSE 100 shares I’d buy today. I think these shares are bargains and I won’t be surprised if they move higher in the near future as the market realises how cheap they are.

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Analysts think this FTSE 100 stock has 40% upside

One FTSE 100 stock that strikes me as very cheap right now is Legal & General Group (LSE: LGEN). It’s a diversified financial services company that provides investment management, insurance, and retirement solutions. Currently, it sports a forward-looking price-to-earnings ratio of just 8.5, which seems very low, to my mind.

There are a couple of reasons I like Legal & General. Firstly, unlike many other cheap FTSE 100 stocks, this company has genuine growth prospects. One area of growth is pension risk transfers. Experts believe this market could be worth £60bn this year, up from around £20bn in 2018. Another area is investment management. As equity markets rise over time, Legal & General – which is a leader in the index fund space – should generate more income.

A second reason I like LGEN is that it’s a cash cow. Currently, the stock has a prospective dividend yield of 6.9%. And analysts expect the dividend payout to rise in the years ahead. Dividends are never guaranteed though.

I’ll point out that I’m not the only one who likes this FTSE 100 stock right now. Recently, analysts at Credit Suisse gave LGEN a ‘double upgrade’, moving it from ‘underperform’ to ‘outperform.’ They also raised their price target to 370p, which is about 40% above the current share price.

There are risks to the investment case, of course. One is that, like many other financial shares, Legal & General is a relatively volatile stock. When markets are turbulent, its share price often takes a hit.

Overall, however, I think LGEN has a lot of appeal right now. To my mind, the stock is very cheap.

Too cheap

Another FTSE 100 stock that I see as too cheap at present is BAE Systems (LSE: BA). It’s a leading defence, aerospace, and security company. Currently, the stock trades on a forward-looking P/E ratio of about 11.4 – well below the median FTSE 100 forward P/E ratio of 16.4.

BAE appears to have plenty of momentum right now. In a trading update in May, the company advised that its Air, Maritime, Electronic Systems and Intelligence and Security divisions “continue to perform strongly”. It added that many of the countries it operates in have made plans to increase their spending to counter challenging threat environments, and that its pipeline of opportunities across all sectors remains strong.

One thing I like about BAE is that recently, it has been moving into higher-growth areas such as cybersecurity and anti-money-laundering. This should help boost growth going forward. I also like the fact that it’s a reliable dividend payer.

A risk to consider here is that defence budgets could be slashed. This could impact the company’s growth. However, looking at the valuation, I think this risk is priced in. Overall, I think the stock has a very attractive risk/reward profile.

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Edward Sheldon owns shares of Legal & General Group and BAE Systems. The Motley Fool UK has no position in any of the shares mentioned. 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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