3 reasons why these FTSE shares still look like huge bargains to me

Mark David Hartley’s bargain hunting again and thinks he may have found three of the most undervalued FTSE shares in the UK right now.

| More on:
Young Caucasian girl showing and pointing up with fingers number three against yellow background

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.

There’s no surefire way to find FTSE shares with guaranteed growth potential. For that, I’d need a crystal ball. However, checking certain metrics can provide an idea of whether a current price is good value or not.

Three metrics I used to evaluate value are price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and discounted cash flow (DCF) analysis. P/E and P/B ratios evaluate whether a share price is appropriate compared to earnings and book value. A discounted cash flow (DCF) model considers whether the company has enough free cash flows to justify the current price.

Using those metrics, these are three options that look attractive to me and they could be worth doing further research.

Standard Chartered

My portfolio’s already heavily weighted towards bank stocks so I’m not really looking to add more. Still, I couldn’t help but notice Standard Chartered (LSE: STAN) has a low P/E ratio of 8.1. That’s well below the UK market average of 16.8. Its P/B ratio of 0.5 is also attractive. That’s below rival bank HSBC, at 0.8, and the UK banking industry average of 0.7.

Future cash flow estimates suggest the current price could be undervalued by 63%.

But the price is already up this year, recently hitting a 12-month high. Now at £7.13, it’s only down 0.28% in the past five years. Further growth may require a strong economic recovery, which may (or may not) be on the cards.

With interest rate cuts expected this year, the banking sector could benefit. But with much of Standard’s activities focused in Asia, I would carefully consider this market’s prospects before buying. 

International Consolidated Airlines Group

International Consolidated Airlines Group (LSE: IAG) is the parent company of British Airways, Iberia, Vueling and Aer Lingus. It’s down 60% since early 2020, struggling for years to regain losses incurred during Covid. Now with a lingering debt load of €16bn compared to only €3.28bn in equity, it has a debt-to-equity ratio of 490%.

That seriously limits any future funding initiatives aimed at boosting profits.

But with that all behind us and air travel back at high capacity again, things should improve. The current P/E ratio is very low, at 3.7 – far below the UK market average and almost half the airline industry average of 6.6. And future earnings estimates put the fair value closer to £2.30, not the current price of £1.76.

With the summer holidays coming, I wouldn’t be surprised to see a boost in sales.

Imperial Brands

Imperial Brands (LSE: IMB) is working to distance itself from the stain of its tobacco business. While still the main source of profit, it’s aware that times are changing and is shifting to less harmful next-generation products like vapes. The long-term success of this plan remains to be seen. 

For now however, the price looks cheap at 50% off its 2016 high. With earnings up 25% in the past year, future cash flow estimates put it at 62% below fair value. And with a P/E ratio of only 8.3, it’s below both the UK market and tobacco industry average. On top of that, it has a very attractive dividend yield of 7.2%, which is well-covered by cash flows.

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Mark Hartley has positions in HSBC Holdings and Imperial Brands Plc. The Motley Fool UK has recommended HSBC Holdings, Imperial Brands Plc, and Standard Chartered 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 Investing Articles

Investing For Beginners

Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he's avoiding and what he's thinking of buying to try and protect his portfolio from…

Read more »

Bearded man writing on notepad in front of computer
US Stock

Call me crazy, but here’s why I’m eyeing up the CrowdStrike share price

Jon Smith notes the carnage caused by Friday's global outage, but flags up why he's thinks the CrowdStrike share price…

Read more »

Investing Articles

What do Hargreaves Lansdown results mean for the share price?

The Hargreaves Lansdown share price has surged in recent months on takeover expectations, but what will the recent results mean…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Newly minted S&P 500 stock CrowdStrike just crashed! Here’s why

Shares of S&P 500 firm CrowdStrike collapse as the company lies at the centre of a global IT outage. What…

Read more »

artificial intelligence investing algorithms
Investing Articles

Is Nvidia heading for the mother of all tech stock crashes?

Nvidia stock has soared, and the company briefly became the most valuable on the planet. But not everyone’s an AI…

Read more »

Dividend Shares

The BP share price is down 15% in 3 months. Time to buy?

In the space of just a few months, the BP share price has fallen by a double-digit percentage. Is this…

Read more »

Investing Articles

A 5.4% dividend bargain I’ll buy over Lloyds shares

Harvey Jones loves his Lloyds shares but now he's found a high-yielding FTSE 250 stock that may offer even more…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Recommended by Warren Buffett, this top hedge fund’s betting on Rolls-Royce shares

When Warren Buffett ended his previous investment partnership, he recommended Bill Ruane’s Sequoia Fund. Today, its largest investment is in…

Read more »