The FTSE 100 is a great place to shop for bargain stocks, in my opinion. Years of underperformance — and especially compared with US shares — means that many British blue-chips look dirt cheap relative to expected earnings, dividends, or both.
Looking ahead, this potentially leaves scope for better returns, especially as high valuations and growing political uncertainty tarnishes appetite for US stocks. But which of the following two Footsie shares do I think share pickers should consider this month?
British American Tobacco
Forward P/E ratio 9.5 times, dividend yield 7.3%
British American Tobacco (LSE:BATS) currently packs one of the FTSE 100’s largest dividend yields. Thanks to its predictable earnings and cash flows, it’s able to pay spectacular dividends year after year.
But does this offset the threat of further share price declines for investors? I think not. British American’s share price has slumped 10% in the last decade, reflecting the tobacco industry’s steady decline.
On the plus side, brands like Lucky Strike and Camel are helping to limit sales reversals. And this could mean more juicy dividends for years to come.
Yet I’m unconvinced. In 2024, British American’s organic cigarette volumes sank 5.2% year on year to 518m sticks. This more or less wiped out the 5.3% improvement in price/mix over the year.
There are also growing signs that the firm’s heavyweight labels are losing their lustre. It said strong sales of deep-discounted rival products also impacted demand for its own sticks in 2024.
But British American hopes its smokeless products like Vuse vapes and Velo nicotine pouches will pick up the slack from its declining core products. It plans for “at least 50%” of group revenues will come from non-combustibles by 2035.
However, the growth potential of these next-gen technologies remains highly uncertain. Legislation impacting the sale and marketing of these products is also tightening across the globe. It’s also struggling to counter soaring demand for illegal single-use e-cigs in North America (vape units dropped 5.9% in 2024 as a result).
WPP
Forward P/E ratio 7.3 times, dividend yield 6.3%
Advertising agency WPP‘s (LSE:WPP) share price performance has also been poor over the last decade. It’s down around 60%, and has slumped more recently due to worsening conditions across its markets.
Like-for-like revenues dropped 2.7% in the first quarter, latest financials showed. They could remain under pressure if prolonged trade wars dampen the global economy.
But given its current low valuation — WPP’s price-to-earnings (P/E) ratio is well below the long-term average of 11-12 — I think this may be a top recovery share to consider.
From a long-term perspective, there’s still a lot I like about the communications giant. Its impressive scale (115,000 employees across more than 100 countries) puts it in good shape to exploit an eventual market upturn.
WPP’s also accelerating its presence in digital marketing and artificial intelligence (AI) to drive future growth. This year, it’s spending £300m to ramp up its WPP Open AI system, up from £250m in 2024. The business estimates around 60% of its client-facing staff now use the system, up from 40% in December.
On balance, I think this is the better FTSE 100 share to look at today.
