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BT vs Barclays: which is the best cheap FTSE 100 share to buy?

Screen of various price trends, possibly in FTSE 100
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In this article I’m asking: which is the best FTSE 100 bargain stock for me to buy today?

Telecoms troubles

BT Group (LSE: BT-A) is a FTSE 100 share that seems to offer irresistible all-round value. This cheap UK share doesn’t just trade on a price-to-earnings (P/E) ratio below the bargain-benchmark of 10 (this clocks in at just 8 times for this financial year). The telecoms giant’s 4.6% dividend yield also comfortably beats the index’s forward average of 3.4%.

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To my mind, though, BT’s low cost reflects the wide range of dangers to future profits, both in the near term and beyond. First and foremost, the UK economic recovery is cooling at an alarming pace. This could blow forecasts of a fractional annual earnings rise at the firm well off course. GDP growth came in at just 0.1% in July, figures on Friday showed, slumping from 1% a month before.

There’s also significant competition from other broadband and mobile phone providers that BT has to fight off. All the while, the capital-intensive nature of its operations is putting extreme stress on the bottom line and undermining the firm’s ability to reduce its £18.6bn net debt mountain. It also has a multi-billion-pound pension deficit to deal with.

Okay, the FTSE 100 company is investing heavily in 5G and its super-fast broadband network to beat the competition and transform its fortunes. But any turnaround is a long way off and will require monumental levels of effort to succeed. BT’s a risk too far for me.

The BT Tower at night

The dirt-cheap FTSE 100 bank

Barclays (LSE: BARC) is another FTSE 100 share rocking a low earnings multiple. City analysts think earnings here will rise 253% in 2021, resulting in a P/E ratio of just six times.

I worry about whether profits at Barclays could end up disappointing, however. It’s not just because of those increasingly worrying British growth numbers. It’s because, as I noted in a recent piece about the Lloyds share price, the competition from challenger banks continues to increase as well. Indeed, rumours that new-age bank Monzo is about to enter the fast-growing ‘buy now pay later’ market have just surfaced, giving established banks like Barclays even more to fret about.

On the plus side, Barclays has significant operations in the US. This could give earnings a significant boost over the next decade as the world’s #1 economy steadily recovers from the Covid-19 crisis. Still, I’d rather buy HSBC and Standard Chartered — or Santander and Bank of Georgia outside the FTSE 100 — to get exposure to foreign markets. The emerging regions that these UK banking shares service look set to deliver much stronger GDP growth over the long term.

Truth be told, I wouldn’t buy either Barclays or BT for my shares portfolio today. Sure they’re cheap, but the market has slapped a low rating on them both for good reason. There’s a tonne of other cheap FTSE 100 stocks I’d rather buy today.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, Lloyds Banking Group, and Standard Chartered. 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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