3 FTSE 100 bargains I’d buy now

Rupert Hargreaves explains why he believes these FTSE 100 stocks are undervalued considering their growth and income potential.

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There are several FTSE 100 stocks that stand out to me as being terrifically undervalued. Considering their potential, as well as market-beating dividend yields, I would buy all of them for my portfolio. 

Tobacco giant

The first company is tobacco group Imperial Brands (LSE: IMB). Due to the ethical considerations surrounding the tobacco business, this stock might not be suitable for all investors. 

However, from a financial perspective, I think the FTSE 100 company looks attractive. It is currently trading at a price-to-earnings (P/E) ratio of just six. The stock also offers a prospective dividend yield of nearly 9%. 

I am attracted to this business because it is a cash cow. To put it another way, the firm has wide profit margins and throws off lots of cash, which management has been returning to investors. Even though the number of smokers worldwide is declining, I think this trend will continue as the company can offset falling volumes with higher prices. 

Still, while I would buy the stock today, I will be keeping a close eye on its sales and profits. If these figures start to slide, it could indicate that high prices are putting off consumers. This could put pressure on the FTSE 100 firm’s dividend. 

FTSE 100 asset manager

As well as Imperial, I would also buy asset management group M&G (LSE: MNG). At the time of writing, shares in this company support a dividend yield of 8.7%. The stock is trading at a P/E ratio of just under 5. 

I think the stock is so cheap because investors do not really understand the enterprise. It is a mix between an asset management and pensions/life insurance business. Management is trying to expand the group’s presence in the UK wealth management market, both organically and through acquisitions. 

I think this strategy makes a lot of sense and will help reduce the company’s dependence on the volatile asset management and pensions business. As the strategy starts to yield results, I think the stock’s valuation will increase. 

That being said, the UK wealth management market is incredibly competitive. There is no guarantee M&G will be able to take market share in the market, so its spending may be for nothing. This is something I will be keeping an eye on as we advance. 

Recovery investment

The final stock I would buy for my portfolio of bargain FTSE 100 stocks is the cruise operator Carnival (LSE: CCL)

The company came to a standstill in the pandemic, and it is still losing money. This makes it harder for me to place a value on the business.

One metric I can use to evaluate stock is its book value. Carnival is trading at a price-to-book (P/B) value of 1.5 today, which compares to its long-term average of around 2. The gap suggests to me that the company is undervalued at current levels. 

This is a high-risk investment. It may take years for the group to recover from the pandemic. Further, it could be years before the company reinstates its dividend. As such, this stock might not be suitable for all investors. 

Nevertheless, I would buy shares in this FTSE 100 bargain today as a recovery play, considering its potential. 

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.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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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