Last November, the FTSE 100 soared due to news of Covid vaccines. Currently, the FTSE 100 is at its post-pandemic high, and I don’t expect another big rise this month. But there are still several FTSE 100 stocks I feel have a large amount of value. Here are two that I’m particularly tempted by.
The defence specialist
The BAE Systems (LSE: BA) share price has had a good 2021, rising around 12% year-to-date and 34% in a year. Even so, the past few weeks have been less positive, with the stock falling back around 7% over the last week alone. This was partly because it went ex-dividend, and also due to some investors deciding to bank profits after its strong run. So I think this dip offers a good time to buy. Here’s why.
Firstly, the company continues to win contracts, especially in the US. Most recently, this included a $478m contract for systems engineering and integration services for the US Navy. It also received a $26m contract to equip some US Navy frigates with naval guns. BAE’s ability to win these important contracts is a demonstration of its market-leading position. Hopefully, it will also enable it to increase its profits over the next few years.
In the recent half-year trading update, the firm’s performance was also positive. Indeed, underlying EBIT, which is a key measure of profitability, was able to climb to more than £1bn, over 20% up from the same period last year. Underlying EPS was also able to rise 25% from last year, reaching around 22p. This puts the stock on a price-to-earnings ratio of around 12, lower than a large majority of other FTSE 100 stocks.
Therefore, I feel that the BAE share price is undervalued, despite the challenges that it faces. This includes the fact that defence budgets are rising at slower rates than inflation, which could hinder profits. As such, I’m willing to overlook this risk, and may buy more shares for my portfolio soon.
A FTSE 100 stock with significant presence in Asia
The luxury fashion market has struggled over the past couple of months due to fears that Chinese growth is slowing and that it is looking to “regulate excessively high incomes”. This has caused the Burberry (LSE: BRBY) share price to fall around 7% in recent months (although it’s up 40% in a year). But while worry around China is a risk, especially because Burberry has a very large presence in Asia Pacific, I still believe that Burberry has a ton of potential.
For one, I’m excited about the company’s new CEO, Jonathan Akeroyd, who will take over from Marco Gobbetti next year. While Gobbetti made his mark at the company, I believe that a new CEO will be beneficial. Akeroyd also has experience as the boss of both Versace and Alexander McQueen, two fashion houses with significant prestige. Such an excellent CV should hold him in good stead for the role.
Further, Burberry has recovered well from the pandemic, and first quarter revenues were 86% higher than in the same period last year. I hope it can continue to build on this recovery in its interim results this month. Therefore, this is another FTSE 100 stock I’d happily buy for my portfolio.
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Stuart Blair owns shares in BAE Systems. The Motley Fool UK has recommended Burberry. 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.