I’m currently looking for undervalued FTSE 100 stocks. What’s more, the 5 April ISA deadline is fast approaching. I’d put a spare £1,000 to work today, buying and holding cheap UK equities in my Stocks and Shares ISA. Here are three FTSE 100 stocks in different sectors that I believe could perform well in the long term.
An airline stock ready to return to the skies
International Consolidated Airlines Group (LSE:IAG) experienced considerable turbulence during the pandemic. The IAG share price took a journey from 668p in January 2020 to penny stock levels, before eventually arriving at 140p today.
The outlook for IAG shares appears rosy to me, with the company likely to benefit from continued relaxations in travel restrictions. According to IATA, 38 of the world’s top 50 travel markets are now open to vaccinated travellers without quarantine — up from 28 just a month ago.
Indeed, this summer, the airline aims to fill 85%-90% of its 2019 capacity. CEO Luis Gallego foresees “significant profits” for 2022. This would mark a positive change in IAG’s fortunes. Last year, the company only managed to cut its pre-tax losses (from £7.8bn to £3.5bn).
At present, I view IAG as one of the cheapest FTSE 100 stocks. Granted, the emergence of a concerning new Covid-19 variant or escalating conflict in Ukraine could derail this hypothesis. Nonetheless, supported by improving financials and a recovering travel market, IAG stock looks like a good long-term buy for me.
A FTSE 100 dividend stock
Asset manager and insurer M&G (LSE:MNG) has one of the highest dividend yields of any FTSE 100 stock at 8.25%. Since it demerged from Prudential in 2019, M&G has delivered strong pre-tax operating profits, namely £788m in 2020 and £721m in 2021.
Other recent achievements include generating capital of £2.8bn in two years and bringing the total value of assets under management to £370bn.
If M&G maintains this performance, I see potential for capital growth for shareholders, in addition to passive income. In my view, this combination makes it a good FTSE 100 stock to beat inflation — currently running at 6.2%.
The firm is not focused on growing its insurance division, which acts as a cash flow bedrock for the business. This could undermine the company’s defensive credentials over time, but I still see value in the M&G share price and bumper dividends.
A Footsie share that consistently beats the index
Drinks giant Diageo (LSE:DGE) has been one of the best FTSE 100 stocks to own over the past five years. Beyond its index-beating returns, Diageo offers investors passive income from its current 2% dividend yield as a bonus.
Diageo delivered an increase in net sales from £11.75bn to £12.73bn for 2021. The company also boosted operating profit to £3.73bn – a 74.6% annual improvement.
Underpinned by intellectual property in an enviable list of brands from Guinness to Smirnoff and a free cash flow in excess of £3bn, the Diageo share price seems to go from strength to strength.
As consumers become more health conscious and possibly reduce their alcohol consumption, there are potential headwinds for Diageo stock. I would still buy it at present, however. My reading of the company’s financials is that demand looks robust.
