These FTSE 100 stocks trade on low earnings multiples and offer market-beating dividend yields. Which should I snap up for my Stocks and Shares ISA?
British American Tobacco
Tobacco giant British American Tobacco’s (LSE:BATS) share price remains locked in a long-term downtrend. It’s down 29% over the past five years as regulation of its products becomes ever stricter.
Legislative changes are perhaps the most obvious threat to the FTSE firm’s earnings. But it’s not the only fire it’s having to fight to deliver decent profits.
Latest results today revealed how it’s also battling to win business in the US. The company described performance in its core market as “disappointing” for the six months to June as consumers switched from premium cartons like Lucky Strike and Dunhill to cheaper brands from its competitors.
Sales of its next-generation items like the flagship glo thermal heating product have also been mixed of late. But there have been nuggets of good news for investors to cling on to here.
The business raised the number of consumers using its non-combustible products by 900,000 in the first quarter. It remains confident of reaching sales of $5bn here by 2025 and for the unit to become profitable next year.
But huge questions remain over whether its next-gen items will become the money-spinner British American Tobacco is hoping for.
Legislators are also clamping down on the use, sale and marketing of these products as health worries grow. Just today New Zealand announced it would ban single-use vapes to curb an escalation in younger users.
Today the shares trade on a forward price-to-earnings (P/E) ratio of 7.1 times. I consider this low valuation a just reflection of the many obstacles it faces to generate decent profits. So I’d rather buy other cheap UK stocks for my portfolio. Not even a 9.4% dividend yield is enough to tempt me to invest.
Barratt Developments
I would rather spend any spare cash I have on more Barratt Developments (LSE:BDEV) shares. That’s even though recovering demand for its new-build homes could be blown off course as mortgage rates keep rising.
Latest Moneyfacts data showed the average rate on a two-year fixed deal hit 5.72%. This represents a rise of around half a percent since the start of May. With the Bank of England tipped to keep hiking interest rates, borrower costs could head a lot higher too.
Yet a bright long-term outlook still makes Barratt an attractive share to own, in my opinion. Homes demand should pick up strongly once inflationary pressures ease and the central bank stops raising its benchmark.
At the same time the UK’s chronic housing shortage drags on. This is supporting prices at present and could send them shooting higher once buyer appetite returns with gusto. Government plans for 300,000 new homes a year to meet demand is in tatters as construction rates reverse.
Based on current forecasts the FTSE firm carries a juicy 7% dividend yield for 2023. It also trades on a corresponding P/E ratio of just 7.3 times. On balance I believe Barratt is worth serious attention at current prices.
