3 cheap FTSE 100 shares to buy

Rupert Hargreaves takes a look at his favourite shares to buy in the FTSE 100, considering their valuation and growth potential.

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With equity markets worldwide falling, I’ve been looking for cheap FTSE 100 shares to buy for my portfolio.

Three companies stand out to me as being undervalued right now compared to their potential. 

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Cheap shares to buy

The first organisation on my list is real estate investment trust (REIT) British Land (LSE: BLND). I already own this company in my portfolio and wouldn’t hesitate to buy more. 

The commercial property sector has faced significant challenges over the past 18 months. However, it now looks as if the industry is starting to recover. Occupancy levels are rising, and property values are beginning to increase. The FTSE 100 business has also been able to restore its dividend. 

With the outlook for British Land improving, I’d buy more of the stock for my portfolio. It’s also trading at a discount to its last reported net asset value of 648p and offers a dividend yield of 3%. 

Risks the company may face as we advance include further economic lockdowns and higher interest rates, which could have a negative impact on property values. 

FTSE 100 income stock

Another company that also features on my list of the best shares to buy is home builder Persimmon (LSE: PSN)

I think this company’s cheap compared to its potential. The UK is struggling to build enough houses, and it doesn’t look as if this will change anytime soon. That implies the demand for Persimmon’s new properties should continue to rise. 

But despite this potential, the stock’s trading at a relatively low price-to-earnings (P/E) multiple of just 12.4. More importantly, it offers a dividend yield of 8.5%. As the company continues to build properties to satisfy the UK’s insatiable demand, I think it can maintain and grow this payout. 

Those are the reasons why I would buy Persimmon today. Some challenges the FTSE 100 company may face include rising costs and higher interest rates, which could dent demand for properties. 

Growth potential

BAE Systems (LSE: BA) is the final company on my list of cheap FTSE 100 shares to buy. The stock’s currently trading at a P/E ratio of 11.9. That looks cheap compared to its international peers. It’s US rivals are selling at an average P/E of around 15.5. 

As well as its low valuation, the stock also offers a dividend yield of 4.2%. 

Demand for defence contractor’s services is booming. It has an order backlog of £44.6bn, underpinning sales for the next two years. A series of significant defence spending commitments from the government recently suggests this backlog will grow in the years ahead. That’s why I would buy the FTSE 100 corporation. 

Still, this company may not be suitable for all investors due to its exposure to the weapons industry. Its presence in this highly regulated industry also increases the risks of owning the stock. 

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Rupert Hargreaves owns shares of British Land Co. The Motley Fool UK has recommended British Land Co. 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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