The FTSE 100 index is having a great run at the moment. Thanks to strength from energy and bank stocks, it’s been hitting new all-time highs.
The good news for those who like value is that there are still a lot of cheap stocks within the index. Here’s a look at two I think investors should consider buying today.
50% off its pre-Covid highs
One Footsie company that strikes me as a bargain at present is healthcare company Smith & Nephew (LSE: SN.), which specialises in joint replacement technology.
Pre-Covid, this stock was trading near £20. Today however, it can be snapped up for around £10. At that share price, the company’s price-to-earnings (P/E) ratio is only 12.6, falling to 10.7 using next year’s earnings forecast.
For a healthcare company that’s generating solid growth (revenue rose 7% last year) and looks well positioned to benefit from the ageing population over the next decade, that’s a very attractive valuation, to my mind. To put that multiple in perspective, US rival Stryker currently has a P/E ratio of about 27.
As a Smith & Nephew shareholder, one risk I’m monitoring is the threat of GLP-1 weight-loss drugs being developed by the likes of Eli Lilly and Novo Nordisk. I don’t think they’re going to blow up Smith & Nephew’s business, but they do add some uncertainty.
I was encouraged by a trading update from Smith & Nephew earlier this month though. Not only did the company say it expects revenue growth of 5-6% this year but it also advised it expects profit margins to rise slightly year on year.
This stock’s unloved
Another Footsie stock I believe offers a lot of value right now is insurer Prudential (LSE: PRU), which is focused on Asia and Africa these days.
Now this stock’s been an absolute dog of late. And it’s not hard to see why.
Like a lot of other companies that have significant exposure to China (Nike, Estée Lauder, Starbucks, etc), it’s suffered from the huge economic slowdown in the country.
For example, a recent trading update showed annual premium equivalent (APE) sales for CITIC Prudential Life, its Chinese Mainland joint venture, were down 17% year on year in Q1.
Overall results for Q1 weren’t terrible though. For the period, total APE sales were up 7% while new business profit was up 11%, thanks to strong performances in countries such as Thailand, Taiwan, and India.
This leads me to believe that when economic conditions in China improve, Prudential’s profits – and share price – could power higher. It’s worth noting there are signs China could already be on the up. For Q1, GDP growth came in at 5.3% – well above forecasts.
At present, Prudential shares trade on a P/E ratio of just 9.4. I see a lot of value at that earnings multiple.
That said, if economic conditions in China deteriorate, the stock may continue to underperform.
