Just because something’s cheap doesn’t necessarily mean it’s low quality. Here are two FTSE 100 shares I think are trading at bargain valuations, at least from a long-term investing perspective. Both are worth considering for an ISA.
The King of Trainers
First up is JD Sports Fashion (LSE: JD). The sportswear retail giant has tripped over its own laces multiple times in the past 12 months, issuing warning after warning on profits.
It originally projected an underlying pre-tax profit in the £955m-£1.03bn range for its current fiscal year, ending February. Now, after a soft Christmas trading period, JD expects £915m-£935m.
Obviously that’s not ideal, but equally not disastrous, I’d argue. For context, it was £917m the year before.
That said, there’s a risk that weak consumer spending and elevated levels of discounting persist for a while. JD rarely gets involved in grubby discounting, preferring to remain disciplined on pricing to maintain its premium image. While that helps maintain margins, it’s not great for top-line growth.
Weak sales at major partner Nike remains a problem. Nimble rivals like Hoka and Roger Federer-backed On are all the rage, eating into Nike’s market share. JD sells them all as part of its multi-brand strategy, but Nike still accounts for around 45% of sales.
If the company was just a UK retailer, I’d be less interested. However, JD has over 4,500 stores globally. Its opportunity to take share in the US, where consumer spending is tipped to improve under Donald Trump’s administration, still appears strong to me.
Meanwhile, Nike’s new CEO is refocusing on its wholesale channels, a shift that should ultimately benefit JD. Things at Adidas, its other major partner, are going much better. Actually, I’m after a new pair of Samba trainers for the summer and might pop into my local JD store.
The share price has fallen 63% in just over three years. Now at 84p, the stock’s trading for 6.4 times next year’s prospective earnings. Even if that forecast proves slightly optimistic, the valuation still looks dirt cheap to me.
I bought shares in November at 97p and may get more. If I do, I won’t be the only one, as CEO Régis Schultz recently invested £99,000 of his own money in the company.
Wall Street hedge fund
My second pick is Pershing Square Holdings (LSE: PSH). This investment trust gives investors a stake in Bill Ackman’s top-performing hedge fund.
The share price is up an impressive 186% over five years.
Ackman has a knack for investing in top-tier brands that have hit a rough patch. Examples include Chipotle Mexican Grill in 2016 after food safety issues, and Alphabet in early 2023 when ChatGPT’s release raised concerns about Google’s search empire. Both stocks have since rebounded very strongly.
His latest potential rabbit from a hat? None other than Nike! Time will tell if this is another well-timed turnaround play.
One risk here is that Pershing runs an incredibly small portfolio of eight-to-12 stocks. This adds concentration risk. But the shares are currently trading at a 29% discount to the fund’s net asset value. While there is no guarantee this discount will narrow, I reckon it offers a chance to consider investing in a high-quality portfolio at a bargain price.
