2 dirt cheap UK stocks to consider buying as the FTSE 100 hits new all-time highs

The FTSE 100 index is on a tear at present. But there are still plenty of opportunities for those who like to buy value stocks, says Edward Sheldon.

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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.

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.

Edward Sheldon has positions in Estée Lauder Companies, Nike, Novo Nordisk, Prudential Plc, and Smith & Nephew Plc. The Motley Fool UK has recommended Novo Nordisk, Prudential Plc, and Smith & Nephew 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.

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