2 FTSE 100 shares to buy now at big discounts

Edward Sheldon has been looking for cheap FTSE 100 stocks trading at low valuations. Here’s a look at two value stocks he sees as attractive prospects.

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While many major equity market indices are trading near their all-time highs, there’s still plenty of value to be found in the good old FTSE 100. Believe it or not, around a quarter of the companies in this index currently have forward-looking price-to-earnings (P/E) ratios of less than 10!

Here, I’m going to highlight two FTSE 100 stocks I believe are very cheap right now. I’d be happy to buy both of these value stocks for my own portfolio today.

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A cheap FTSE 100 stock with a 6.6% yield

The first is Legal & General Group (LSE: LGEN). It’s a financial services company that operates in a number of areas including insurance, investment management, and retirement solutions. At present, LGEN sports a forward-looking P/E ratio of just 8.5 – well below the median FTSE 100 P/E ratio of 16.5. In my view, the valuation here’s very attractive.

Unlike many other cheap UK stocks, Legal & General has plenty of momentum at present. In its recent first-half results, the group posted a 14% increase in operating profit, thanks to double-digit growth in three of its divisions. On the back of this growth, the group increased its dividend by 5%.

Looking ahead, I expect the company to continue growing. Over time, it should benefit from the growth of both the investment management and the retirement solutions industries.

One risk to consider here is share price volatility. Like many other financial stocks, LGEN is quite volatile at times. The stock has a ‘beta’ (a measure of volatility relative to the market) of 1.6, which means it’s significantly more volatile than the FTSE 100 as a whole.

I’m comfortable with this potential though. With a prospective yield of 6.6% on offer, I’m happy to take on the risk. It’s worth noting that analysts at Barclays recently raised their target price to 355p – nearly 30% above the current share price.

A Footsie bargain

Another FTSE 100 stock that I see as very cheap right now is defence, aerospace, and security company BAE Systems (LSE: BA). It currently trades on a multiple of 12 times this year’s forecast earnings and 11 times next year’s forecast earnings. These valuations – which are well below the UK market average of around 16 – strike me as too low.

Like Legal & General, BAE Systems has momentum right now. In its recent first-half results, it posted a 6% increase in sales and a 25% jump in earnings per share. As a result of this growth, it raised its dividend by a healthy 5%. It also declared a new share buyback programme of up to £500m (which suggests it sees its shares as cheap). Looking ahead, analysts expect revenues and profits to keep rising. 

One risk here is that governments could cut their defence budgets in the future. This could impact future revenues.

Overall, however, I think the risk/reward proposition here is attractive. Analysts at research firm Vertical Research recently raised their target price for the FTSE 100 stock to 660p – nearly 20% above the current share price.

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Edward Sheldon owns shares of Legal & General Group and BAE Systems. The Motley Fool UK has recommended Barclays. 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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