2 cheap FTSE 100 shares I’m buying during the dip!

Andrew Woods explains that low P/E ratios and profitable businesses attract him to these two FTSE 100 shares.

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I love a bargain, especially when it involves FTSE 100 shares. With the index bursting full of exciting companies, I’m keen to find cheap stocks to add to my portfolio during this market dip. I’ve found two businesses that I’ll be buying soon, so let’s take a closer look. 

Rio Tinto

Rio Tinto’s (LSE:RIO) share price has fallen by about 19% in the past year and nearly 16% in the last month. The shares currently trade at 4,720p.

The company – a miner of base metals – has been benefiting from higher metal prices following the pandemic. 

In 2021, it posted pre-tax profits of $30.8bn and declared a record dividend of $10.40 per share. This income stream is attractive to me as a potential investor.  

In more recent times, however, demand has slowed for commodities like iron ore and aluminium. One reason for this is that China, a major consumer of these products, has been in a lockdown situation for many months in 2022.

But investment bank JP Morgan has forecast a 7% quarter-on-quarter rebound in the second half of 2022 for the Chinese economy. Any recovery in that market could be great news for Rio Tinto, because rising demand may lead to higher base metal prices.

On the other hand, risks posed by cost and wage inflation may begin to eat into future profit margins.

Despite this, it’s possible that the shares are cheap. The company has lower forward price-to-earnings (P/E) ratios than many competitors, including Antofagasta and Anglo American.

StockForward P/E ratio
Rio Tinto5.52
Antofagasta13.85
Anglo American6.02

While this may not definitively indicate whether a share price is in bargain territory, it certainly makes it more attractive to me. 

Harbour Energy

Secondly, Harbour Energy (LSE:HBR) is a business that I’ve been tracking for a while. As an oil exploration and production company, it has been benefiting from surging oil prices over the past few months.

Indeed, both Brent and WTI crude oil have been consistently above $100 per barrel since May.

The firm initiated a share buyback scheme in June, amounting to $200m, suggesting it’s financially stable.

In its first-quarter report in 2022, Harbour Energy stated that its cost per barrel was $14. This is below guidance of $15-$16 per barrel and gives an insight into how profitable the company’s operations are at the present time.  

It’s also embarking on new drilling operations in the UK and Indonesia, which should progress throughout this year. 

With a lower forward P/E ratio than both Shell and BP, there’s also the chance that the shares are cheap at the current price of 338p.

StockForward P/E ratio
Harbour Energy2.21
Shell5.32
BP4.17

There are, however, always risks posed by cost inflation or a fall in the oil price from increased global production.

Overall, the shares of both Rio Tinto and Harbour Energy may be bargains at the moment. I will be adding these companies to my portfolio soon to gain greater exposure to the base metal and oil markets. 

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.

Andrew Woods has no position in any of the shares mentioned. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has no position in any of the shares mentioned. 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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