Last week’s stock market volatility presents a dream opportunity for value investors. The FTSE 100 is packed with top companies trading at rock-bottom prices. So I’m looking to get my debit card out and start spending.
The following UK blue-chip shares have all fallen in value in recent days, but are they brilliant bargains or investment traps?
BT Group
On the one hand BT Group (LSE:BT-A) could be considered one of the best shares to own during uncertain times like these. People and businesses need to pay to stay connected at all points of the economic cycle. Telecoms companies like this can therefore be seen as
So why are BT shares so cheap at current levels? Today, the company trades on a forward price-to-earnings (P/E) ratio of 6.6 times. This, added to the firm’s 6.1% dividend yield, looks like exceptional value.
The truth is that BT is fighting fires on a number of fronts… and failing. The announced departure of chief executive Philip Jansen today, who has been in post since 2019, underlines the scale of the challenges it faces.
Most worryingly to me as an investor is the company’s huge debt pile. Standing at £18.9bn as of March, it’s on course to grow as UK broadband and 5G rollout continues. This at the very least puts future dividends in question.
The company’s capacity to grow sales and earnings — and therefore to also reduce those debts — is becoming increasingly difficult too. It operates in a highly competitive sector, so increasing profits by raising prices is pretty much off limits.
BT’s revenues have fallen every year since 2017 and I think there’s a high chance they’ll keep tumbling too.
Rio Tinto
Mega miner Rio Tinto (LSE:RIO) is a FTSE 100 share I’d rather buy today. Profits here could rise strongly over the next decade as the world embarks on a new commodities supercycle.
The company is best known as one of the planet’s biggest producers of iron ore. Sales of the steelmaking ingredient generate around 80% of its earnings. As town- and city-building in emerging markets gathers pace — and spending on creaking infrastructure in the West rises — demand for the natural resource is poised to balloon.
But Rio Tinto is more than just about iron ore. It’s also a major producer of copper and aluminium and a supplier of key materials like lithium and titanium dioxide. This gives it exposure to other booming industries like electric vehicles, renewable energy and consumer electronics.
The company’s size means it has the financial firepower to capitalise on these growth opportunities too. Last month alone it announced plans to spend $1.5bn to expand some key copper and aluminium assets.
Today, Rio Tinto shares trade on a forward P/E ratio of 8.5 times. It also carries a large 7.2% dividend yield for this year. The company may suffer some near-term profits turbulence as the global economy cools but, on balance, I think its shares still represent excellent value.
