1 stock in the FTSE 100 that looks like a bargain hiding in plain sight

This cheap-looking FTSE 100 stock has an anticipated dividend yield around 6% and City analysts expect growth in earnings ahead.

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The markets have been weak and there are some bargain stocks in the FTSE 100 worth investors’ consideration now.

One is WPP (LSE: WPP) the communications services, advertising, and public relations company.

Some of the valuation measures look attractive after a long period of share price weakness. For example, the forecast dividend yield is just above 6% for 2024. And the earnings multiple for that year is a little under seven.

The rise of AI

But investors have been worried about something. The stock was as high as 1,818p in early 2017. But it’s now around 670p after slipping a little further on 26 October 2023 when the third-quarter trading update hit the newswires.

One of the problems is the big pile of debt on the balance sheet. Investors can get a quick feel for that by comparing the enterprise value (EV) with the market capitalisation.

The EV is just under twice the size of the market cap. And the difference between the two is roughly the value of the company’s net debt.

However, another problem affecting investor sentiment might have been the rising awareness of artificial intelligence (AI). WPP’s activities are perhaps the sort of thing that AI systems can take over. So, in one possible scenario, its business could wither on the vine as it loses market share going forward. 

But the company said in its update that it has made “great progress” over the last five years investing in creativity and technology. And it’s also reduced to fewer and stronger agency brands leading to a strengthening of the firm’s offer to clients. 

New talent has joined the company, particularly in the US. And the company made early investments in AI. So, it looks like WPP embraced the threat from AI and turned it into a potential advantage.

The directors reckon AI now features in many examples of work the business does for its clients. 

Simplifying the business

The company is also focused on its debt problem. And in 2020, it completed the sale of 60% of the Kantar global data, research, consulting and analytics business. The move raised around £1.4bn and helped WPP reduce debt to the current level.

Nevertheless, there’s more to do with debt reduction. And the balance sheet is a risk new potential shareholders should consider.

However, the directors are looking ahead and evolving strategies to ensure that WPP remains relevant and competitive to major global and local clients”.

Part of that process will likely involve simplification of the firm’s operating model and more consolidation of the company’s brands.

Meanwhile, like-for-like Q3 revenue came in around 3% higher than in last year’s equivalent period. But chief executive Mark Read said the top-line performance was below the directors’ expectations. And the situation likely arose because of “cautious spending trends”, particularly with the firm’s technology clients.

Nevertheless, City analysts predict rises in earnings and dividends for this year and next. Although there are risks, WPP strikes me as being worth careful consideration now. And it could be a bargain hiding in plain sight. 

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.

Kevin Godbold has no position in any of the shares mentioned. 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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