These two FTSE 100 shares trade on rock-bottom earnings multiples. Should I add them to my Stocks and Shares ISA this October?
International Consolidated Airlines
Travel group International Consolidated Airlines (LSE:IAG) has been one of the Footsie’s star performers in 2023. Up 23% in the year to date, the British Airways owner has been boosted by a sustained rebound in the airline industry.
Yet despite these gains its shares still look exceptionally cheap. Today the company trades on a forward price-to-earnings (P/E) ratio of 5 times.
However, I’m not looking to add IAG to my portfolio today. As the recent decline in its share price shows, profits at the company are in increasing danger going into 2024. Demand for its tickets could fall sharply as its key European markets teeter on the brink of recession and consumers cut spending on luxuries like holidays.
At the same time, fuel prices are threatening to ignite as supply worries in the oil market persist. Crude values have retreated in recent days, but a charge through $100 per barrel is still possible as OPEC+ producers cap output and US stockpiles dwindle.
Potential strike action is another huge threat to the company. On the plus side, British Airways may be about to sign a three-year pay agreement with its pilots, according to Sky News. But walkouts from its own staff and airport employees is a constant danger to its flight schedules.
IAG’s exposure to the budget airline segment could help support earnings during these tough times. Passenger numbers at its Aer Lingus and Vueling ops might remain steady or even pick up as customers switch down from more expensive carriers.
However, IAG is no Ryanair or easyJet. It makes just over 10% of operating profit from its low-cost units. So all things considered I believe this is a stock that’s best avoided.
Prudential
I’d much rather use any spare cash I have to invest in Prudential (LSE:PRU).
I already own shares in this particular FTSE 100 stock. And its 25% price decline in the year to date is encouraging me to increase my stake. Today the company trades on a forward P/E ratio of 11 times.
Prudential’s share price descent reflects concerns that demand for life insurance could sink in its Asian markets. In particular, fears of economic contagion from struggling China are high.
Still, I can’t help but think that these fears have been overcooked. As analysts at McKinsey & Company have recently commented, economic conditions in the company’s South-East Asia markets are “softening but still strong.”
Most recent trading numbers from The Pru suggest that concerns have been overplayed. Between January and June new business profit rocketed 39% year on year, beating City expectations, with the company enjoying double-digit increases in 16 of its markets.
Prudential is well set to capitalise on growing financial services demand across Asia and Africa. I’m expecting its share price to bounce back strongly following 2023’s collapse.
