2 cheap shares I’d buy as the FTSE 100 falls

After the FTSE 100’s recent falls, the entire index looks too cheap to me. That’s why I see these two Footsie stocks as beautiful bargains right now.

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When I was a younger investor, I worried when share prices fell. Thus, when the FTSE 100 went down, so too did my mood.

Down goes the FTSE 100

Since 31 July, global stock markets have lurched downwards. The Footsie initially followed suit and then rallied strongly until 20 September. It has since retreated by 3.4%, pushing it further into deep-value territory.

Looking at the FTSE 100’s one-year chart, it resembles the teeth of a saw — zigzagging up and down without any real momentum. Indeed, it’s up just 0.2% since 30 December.

Two cheap shares I’d buy while stocks last

As a contrarian investor, I aim to buy stocks when they appear under-priced, regardless of the prevailing market sentiment. Therefore, here are two FTSE 100 shares I already own, but would gladly buy more of.

FTSE 100 bargain #1: BP

The price of a barrel of Brent crude oil recently exceeded $96, sending fuel and energy costs soaring again. So I see the stock of oil & gas supermajor BP (LSE: BP) as my hedge against bigger bills. Hence, my wife and I bought BP for our family portfolio in August for 484.1p a share.

As I write, BP shares trade at 505.7p, valuing this FTSE 100 giant at £87.4bn. But BP shares have fallen 6.5% since 28 September, as the oil price slips back. Over one year, this widely held stock is up 11.3%, but is down 14.1% over five years.

At current levels, the shares trade on a multiple of six times earnings, for an earnings yield of 16.7%. This means that BP’s dividend yield of 4.3% a year is covered 3.9 times by earnings — a wide margin of safety.

Then again, oil shares are notoriously volatile, as BP’s long-term price chart clearly shows. Also, energy companies face huge costs in the transition to a low-carbon economy.

Even so, I see both of these worries baked into the current price. Indeed, I’d buy more BP stock today, had I the cash to spare.

Footsie winner #2: Pershing Square Holdings

The second stock I’d gladly buy again right now is Pershing Square Holdings (LSE: PSH) — a totally different beast to BP.

Established in 2012, this Guernsey-registered investment trust invests in American hedge fund Pershing Square Capital Management. This fund is run by outspoken billionaire investor William ‘Bill’ Ackman. I call him ‘Wild Bill’, due to his big, bold bets on asset prices.

For example, Ackman’s hedge fund bought $27m of credit derivatives during the Covid-19 crisis of spring 2020, selling them a month later for a profit of $2.6bn. Wow.

A member of the FTSE 100 since December 2021, this trust is valued at $7.6bn (£6.25bn) today, based on the current share price of 2,942p. This is a near-36% discount to the trust’s NAV (net asset value).

Of course, Pershing’s success depends entirely on Ackman’s skill — and he has made a couple of howlers in his time. Yet this stock has beaten the FTSE 100 over one year and five, gaining 7% and 157.6%, respectively. Indeed, it’s the FTSE’s #1 performer over five years.

We bought this stock in August for 2,989p a share — and I’d buy more Pershing shares at current prices, if I had cash to spare!

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.

Cliff D’Arcy has an economic interest in both shares mentioned above. 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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