After big falls, these FTSE 100 stocks look dirt-cheap!

Dr James Fox details some of his top FTSE 100 stocks to buy after the recent market correction saw some UK company valuations plummet.

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FTSE 100 stocks tend to trade at discounts versus their US counterparts. There are several reasons for this, including a dearth of typical growth stocks on the British exchange, and broad negativity around the health and future of the UK economy.

But after March’s stock market correction, which rocked financial stocks more than most, I’m seeing even more value than I had previously. So today, I’m looking at some of the cheapest stocks on the FTSE 100 after March’s downward pressure.

Barclays

Barclays (LSE:BARC) is among the cheapest stocks on the index. It currently trades with a price-to-earnings ratio of just 4.7. That’s less than half the index average.

The stock fell on the back of the Silicon Valley Bank (SVB) fiasco. The situation was largely exacerbated by the implosion of Credit Suisse and its takeover by UBS.

Investors grew concerned about unrealised bond losses after SVB was forced to sell low-yielding bonds at losses after its tech-focused deposit base starting withdrawing.

But Barclays, like other big banks, doesn’t need to sell its bonds, even if they are falling in value. That’s because the bank serves a variety of individuals and businesses — not just the tech sector — and liquidity is strong. Instead my main concern is the impact of the current very high rates on bad debt and impairment charges.

Refocusing on valuation, Discounted Cash Flow (DCF) calculations suggest the bank could be undervalued by as much as 73%. That’s certainly an incentive to invest. And with the share price falling, we’re now looking at a 5% dividend yield.

I’m buying more Barclays stock as the share price starts recovering. For me, it’s vastly undervalued and concerns about bond losses are misplaced. This is a company that’s frequently stress tested and liquidity coverage is in line with the top banks in Europe.

Phoenix Group

Phoenix Group (LSE:PHNX) is the UK’s largest long-term savings and retirement business. The group manages regulated life companies in the UK, including Phoenix Life, a closed life insurance business covering Phoenix Life and Phoenix Life Assurance and Phoenix Wealth, among others.

It’s business model involved buying and managing closed business until maturity. For example, in 2018, Phoenix Group agreed to acquire Standard Life Assurance from Standard Life Aberdeen for £2.9bn. It’s a model that has proven very successful.

Phoenix Group shares also pushed downwards in March. The stock now trades with a price-to-earnings ratio of 6.6, almost half the index average.

It recently announced that, on an IFRS basis, adjusted operating profits for 2022 rose slightly to £1.24bn, up from £1.23bn in 2021, while assets under administration fell to £259bn from £310bn amid volatile markets. The recent market volatility is unlikely to have aided Phoenix Group. I’m a little wary that assets under administration could fall further this year.

One of the most attractive things about Phoenix Group is its 9.3% dividend yield. The dividend was recently raised for 2022, and the coverage ratio is 1.6. That could be higher, but it doesn’t make me worried about the yield.

I’ve recently topped up on this stock after the fall. The median analyst share price forecast suggests a 26.28% increase from the current 547p. I bought for the yield and share price growth.  

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 assessed. Consider taking independent financial advice.

James Fox has positions in Barclays Plc and Phoenix Group Holdings plc. The Motley Fool UK has recommended Barclays Plc. 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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