2 FTSE 100 stocks I’d buy for long-term returns

I am always on the lookout for a investment bargain. Here are two good-value stocks I am looking to add to my portfolio soon.

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The ultimate goal for investors is to find undervalued, cheap stocks that could grow for years to come. This is a good investment strategy but it’s not always straightforward.

However, in my analysis, I’ve identified two FTSE 100 stocks that I think are good value at the moment to add to my long-term investment portfolio.

Insurance giant

Insurance giant Prudential (LSE: PRU) has caught my eye in recent months. In 2019, the company spun-off UK-based M&G and plans are under way to offload its American Jackson business. Also, news broke yesterday that Prudential is set to sell its retirement division to Canada’s Great-West for US$3.55bn.

This mass-shedding is because Prudential has been focusing on two growing markets — Asia and Africa. These are two areas that could potentially increase its customer base by millions every year.

In India, Prudential is showing tremendous growth. In the last five years, its compound annual growth rate (CAGR) in this growing economy has stood at 32%. It ranks third in the list of private insurance providers and has a 12% market share.

The firm’s Pulse app has made huge strides in China and Thailand too. The digital platform offers end-to-end insurance and health cover and amassed 24m users by 2020. And with access to most of China’s growing urban markets, profits in the region grew from $160m in 2015 to $502m in 2020.

Yet there are concerns after the pandemic increased market volatility. This directly impacted Prudential’s sales in international markets and the long-term impacts in regions like India are still uncertain. As a result, the company slashed dividend yield to 0.9% in 2020 from 2.7% in 2019. Also, the P/E ratio is currently at 23, which is above the FTSE 100 average. 

But I still remain optimistic about Prudential’s growth strategy and think it’s a good-value pick at 1,368p after factoring in potential future growth in Asian markets. 

‘Cheap’ defence stock

BAE Systems (LSE: BA) is the UK’s largest weapons manufacturer and ranks among the top 10 global defence contractors.

The stock has seen an uptick in the last 12 months giving investors 11.77% returns. But, on zooming out, the five-year returns stand at a measly 2.3%. 

However, this does not tell us the full story. BAE Systems was soaring before the pandemic and took a major hit after lockdown caused trade in the sector to cease. But the company, with major markets being the US and the UK, made some significant moves in 2020 and saw sales growth of 7%.

The company made two US R&D acquisitions totalling $2.2bn. It also secured a £1.3bn Eurofighter contract with Germany and signed a £2.4bn munitions contract with the UK.

My concerns surrounding BAE focus on international weapons trade laws, which are subject to constant changes. The company is also subject to regulations from the UK government as part of the £1 ‘Golden share’ agreement, which gives the government rights to veto any possibility of foreign ownership.

But its shareholder returns are impressive. BAE is currently trading at 546p with a P/E ratio below the FTSE 100 average at 13.5 and offering a dividend yield of 4.5%, or 23.7p per share. This shows me good long-term potential and I would consider BAE Systems for my portfolio.

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 considered so you should consider taking independent financial advice.

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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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