I’m drawing up a list of great value FTSE 100 stocks to buy inside this year’s Stocks and Shares ISA allowance. The following three look incredibly cheap, with valuations in the low single digits.
Lloyds of London insurer Beazley (LSE: BEZ) is a speciality-risk insurance and reinsurance business, which puts it on the front line of climate change. Many investors swerve the stock, as they expect floods, storms and hurricanes to drive up claims costs.
The Beazley share price now trades at just 4.23 times trailing earnings. That’s made it a target of takeover speculation, although I never buy shares on those grounds.
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Great value out there
Full-year 2023 pre-tax profits jumped 155% to a record $1.25bn. Subsequent Q1 results show premiums up another 7% to $1.48bn, in line with targets. Investments and cash jumped 19% to $10.83bn.
Investors haven’t completely ignored Beazley. Its shares are up 17.22% over one year and 91.06% over three. The yield’s a modest 2.14% a year and dividends per share of 17 US cents, 16 cents and 18 cents in 2021, 2022 and 2023 show scant growth. However, the board recently launched a $325m share buyback.
Inflation has driven up claims costs, as labour and repair bills rise. Last year, Beazley was forced to publish a correction to its balance sheet after the Financial Times spotted an embarrassing error in its annual report. I don’t think it’ll make that mistake again.
And so to another FTSE 100 company on the frontline of climate change, but in a different way. Oil and gas giant BP (LSE: BP).
Its board has come under fire for rowing back on its shift towards renewables, and some ethically minded investors might want to avoid. Others will find its valuation of 6.63 times trailing earnings irresistible.
Energy stocks tend to be cyclical, so I think it’s best to buy when they’re down. The BP share price has fallen 1.54% over the last year.
BP recently spooked investors by saying it would take a hit of up to $2bn in Q2, due to an asset write down, squeezed margins and lower oil trading profits. The subsequent dip could represent a buying opportunity, with the trailing yield back above 5%. BP will be a bumpy ride, but I’m tempted to get on board anyway.
Three-way stock split
British Airways owner International Consolidated Airlines Group (LSE: IAG) has been cheap for yonks. Today, it trades at a scarcely believable 4.12 times earnings.
The airline sector can also be bumpy, as we saw in the pandemic, while geopolitical troubles can shut down lucrative routes in a moment. The risk is embedded in today’s low IAG share price.
The stock’s picking up as travel recovers, rising 13.22% over one year and 57.27% over two. Investors won’t get any income though as IAG still hasn’t restored its dividend.
Fuel price volatility and the cost-of-living crisis remain a worry. Again, climate change could have something to say. It’s a major challenge for aviation.
However, Morgan Stanley’s recent move to double upgrade IAG from Underweight to Overweight and lift its target price from €2.10 to €2.80 is a positive. Today, it trades at £1.73 (€2.05). These three stocks aren’t without risks, but that’s why they’re cheap.
