3 FTSE 100 penny stocks! Which is the cheapest buy?

Our writer examines three penny stocks that feature in the FTSE 100 index to ascertain whether they have a place in his long-term portfolio.

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UK penny stocks typically have market capitalisations under £100m, although this isn’t always the case. Consequently, the FTSE 100 index might not be the first place investors look to find penny stock bargains. Yet three Footsie constituents are currently trading below 100p per share.

Do these penny stocks offer value and would I invest? Let’s explore.

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Lloyds share price — 44p

Lloyds (LSE: LLOY) shares have been in a trading range between about 20p to 90p since crashing to penny stock levels during the Global Financial Crisis. At 44p today, the Lloyds share price is down 11% in 2022.

This year, the forecast is for 10% inflation. Interest rates are at a 13-year high. Further monetary tightening appears likely. This should be bullish for Lloyds, but it’s only one factor influencing the share price.

Fears of a UK property market slowdown and potential loan defaults during the cost of living crisis are headwinds. With a particularly strong domestic presence, Lloyds is more exposed to these risks than FTSE 100 rivals, such as Barclays and HSBC.

Lloyds trades at a cheap price-to-earnings (P/E) ratio of 5.95 and offers a healthy 4.51% dividend yield. Despite the risks, it’s a penny stock worth holding in my view.

ITV share price — 72p

ITV (LSE: ITV) stock crashed in March 2022. It’s remained a penny stock since. At 72p today, ITV’s down 36% in 2022.

Quarterly results were impressive. Total revenue increased 17% to £1bn. Additionally, total advertising revenue grew 16%, but the broadcaster anticipates a 6% decline in Q2. This could suppress growth in the ITV share price over the short term.

News reports of a planned takeover bid for Channel 4 add to ITV’s investment appeal for me. A merger would give ITV control over 70% of the UK’s TV advertising market. However, it needs to overcome regulatory barriers and stiff competition from companies like Sky to make this a reality.

With a P/E ratio of 7.79 and a 4.54% dividend yield, I believe ITV shares currently have an attractive risk-reward profile.

Rolls-Royce share price — 84p

Rolls-Royce (LSE: RR) shares have experienced choppy trading action either side of the 100p mark since the pandemic’s onset. At 84p today, the RR share price is down 33% this year.

The firm foresees profit and a positive cash flow this year. Notably, RR shares are dependent on a fragile rebound in international travel demand to ensure its civil aerospace division meets its targets.

Even if this can be achieved, net debt levels of £5.2bn mean a sustained recovery in RR stock won’t be easily forthcoming in my view.

Rolls’ defence business offers some promise. However, with a P/E ratio of 57.91 and no dividends until 2023 because of the company’s negative shareholders’ equity, Rolls-Royce doesn’t compare favourably to other FTSE 100 penny stocks in my opinion.

The penny stocks I’d buy today

I already own Lloyds shares. I’d buy more at current levels as long-term holds. Overall, I consider it the FTSE 100’s cheapest penny stock. The dividends aren’t too shabby either.

I’m also tempted to establish a small position in ITV shares, adding diversification to my portfolio.

Currently, Rolls-Royce shares don’t appeal to me, so I won’t be buying.

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Charlie Carman owns shares in Lloyds. The Motley Fool UK has recommended Barclays, HSBC Holdings, ITV, and Lloyds Banking Group. 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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