I’m always on the lookout for cheap-yet-quality businesses to potentially add to my portfolio. And I think FTSE 100 shares are a great place to start.
The index didn’t budge much in the first half of the year, rising by just under 1%. Yet despite this, it’s filled with high-quality stocks that have the ability to generate some healthy returns over the long run.
With that in mind, I have my eye on two FTSE 100 shares that look dirt cheap. I think investors should consider them today.
Banking stalwart
Well, the first stock I like the look of is Lloyds (LSE: LLOY). Long-term investors in the bank won’t be overly happy with its performance in recent times, with it down by over 25% in the last five years. However, right now it looks cheap, and I think this could present an opportunity to snap up a bargain.
With a current price-to-earnings (P/E) ratio of just 6.3, Lloyds shares look severely undervalued. For comparison, this sits significantly below the average of its FTSE 100 peers.
However, it’s not just its low valuation that could tempt investors toward the stock. Lloyds also provides a substantial dividend yield. And with inflation still rampant, this seems like a smart way to put cash to work that would instead be lying stagnant. The stock currently offers a yield of around 5.3%, trumping the Footsie average (around 3.5%).
With that said, I do have my concerns. Firstly, its sole focus on the UK places it at greater risk of the threat of recession. Moreover, the recent US banking crisis could also impact the performance of Lloyds shares.
However, with dividends covered around 2.7 times by earnings, Lloyds offers investors cheap access to the banking sector along with a solid source of passive income.
Mining powerhouse
The second stock I’m keeping track of is Rio Tinto (LSE: RIO). The mining giant has struggled in 2023, with its share price down over 10%.
But with that, it currently has a P/E ratio of around 8, which I think shows there’s value to be had.
It’s yielding nearly 8% and the stock, like Lloyds, also offers investors a source of passive income. However, as is always the case with dividend payouts, it could be cut at any time. This was seen back in February when falling annual profits forced the miner to more than halve its dividend.
That said, it still offers a sizeable yield. And there are other reasons to like the stock. Rio Tinto’s operations have been hampered in recent times by a fall in demand from China. However, as the country continues recovering from its Covid hangover, I expect demand to ramp up. The rising demand for copper as the global transition to greener energy continues should also see Rio Tinto benefit.
The play
Despite the fact that I already own Lloyds shares, I’d be keen to top up my position at its current price. I also like the look of Rio Tinto. If I had the spare cash to invest, I’d certainly be looking to add these stocks to my holdings.
