2 cheap FTSE 100 ideas I’m looking to buy before they get expensive

Jon Smith talks through two FTSE 100 ideas that are down over the past year to the extent that he believes it’s worth considering to buy both.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Investor looking at stock graph on a tablet with their finger hovering over the Buy button

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

No one likes overpaying for something. The same applies when it comes to the stock market. I hang my head in shame when I see a stock that I passed over months ago rocketing higher in value. With that in mind, here are two FTSE 100 stocks that I think are good value now, but won’t remain that way forever.

Sneaking under the radar

Sainsbury’s (LSE:SBRY) is one of the largest UK supermarkets. The share price is down 4% over the past year, with it languishing close to 52-week lows at the moment.

The business shared a strategy update at the start of the month that really struck me. It shows the progress that the firm has made over the past few years. For example, in the 2019/20 financial year it recorded an underlying profit before tax of £586m. For the 2023/34 year, this is expected to be £670/700m.

There has also been progress on reducing the net debt. The debt (excluding leases) stood at £1.1bn in 2019/20. It’s expected to be around the £200m mark for the current financial year.

Yet despite these fundamental benefits, the share price isn’t really moving. Granted, this isn’t a problem for income investors, who are picking up a 5.16% yield from the dividends. But I think it’s only a matter of time before the stock starts to move higher to target levels above 300p.

Of course, a risk is that the firm operates in a cut-throat sector. Aggressive competitors and thin profit margins mean that no business is safe in this retail space.

Waiting for a bounce back

The other undervalued stock I’m thinking about buying is Kingfisher (LSE:KGF). The owner of Screwfix and B&Q had a boom period during the pandemic. Yet following the rapid rise in interest rates, people have put DIY projects on hold (or haven’t needed to do work on new homes as they couldn’t afford to buy!)

I believe this is reflected in the 21% fall in the share price over the past year. In light of this, I think the stock is cheap. Interest rates won’t stay above 5% forever. In fact, we could see a rate cut as soon as May. As pressure eases and consumers feel more comfortable about spending, I’d expect to see demand for tools and related products to increase again.

Even though earnings haven’t been spectacular recently, the share price appears to have fallen faster than it should have. This is reflected in the drop in the price-to-earnings ratio to 7.49. Below 10 is where I flag up a company as potentially being undervalued. I feel this is the case for Kingfisher.

Of course, any rebound in the property market and change in interest rates could take longer than expected. This is a risk that I need to consider, as it would impact the share price.

I see value in both stocks for the long term, and so am wanting to buy when I have some spare funds.

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.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury Plc. 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.

More on Growth Shares

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This forgotten FTSE 100 gem could be the best bargain on the stock market

The FTSE 100 is full to the brim of high-quality businesses. But this Fool has his eye on this 'forgotten'…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s a FTSE 250 stock I’d put 100% of my money into

If this Fool could buy just one stock from the FTSE 250, Games Workshop would be his choice. Here, he…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

If I’d put £1k in Games Workshop shares 5 years ago, here’s how much I’d have now!

Games Workshop shares have proved to be a stellar investment in recent years. Charlie Carman examines whether this trend can…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

55% below its all-time high, this growth stock doubles up as a value investment

Oliver says Kainos Group is one of the best technology growth stocks on the British market. He says the growth…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

As the Rolls-Royce share price falls, has a big correction just started?

Is the Rolls-Royce share price heading for a 20% fall? Or is there a new 20% rise on the cards?…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Up 45% in a year! Here’s why I think this FTSE 100 stock will keep on growing

While Sage could face threats from advanced AI competitors, Oliver thinks its place in the FTSE 100 is stable for…

Read more »

Investing Articles

Is £4 a fair price for Rolls-Royce shares?

Our writer runs his slide rule over last year's FTSE 100 star performer and considers whether Rolls-Royce shares might now…

Read more »