Years of underperformance mean that the FTSE 100 index is jam packed with top value shares. Today investors have a huge choice of stocks dealing on low earnings multiples and carrying sky-high dividend yields.
Some of these shares are classic investor traps. But many of them are bona-fide bargains. Here are two such value stars I think deserve a close look today.
M&G
Thanks to its 9.4% forward dividend yield, M&G (LSE:MNG) is currently the highest-yielding Footsie share. It also trades on a rock-bottom price-to-earnings (P/E) ratio of 9.2 times for this year, making it (in my opinion) one of the UK’s most attractively priced blue chips.
The financial services market is huge, and looks set for further substantial expansion as elderly populations rapidly grow. With interest rates falling again, asset managers like this could also scoop up extra business as people switch out of savings accounts to find better returns.
M&G’s in great shape to capitalise on this landscape, with its substantial brand power and improving exposure to fast-growing segments (like pension risk transfers). Accordingly, the company expects underlying operating profit to grow at at annualised rate of 5% and above through to 2027.
In a further encouraging sign, M&G has in recent days signed a major partnership with Japan’s Dai-ichi Life to boost European and Asian sales. The company expects the deal “to deliver at least $6bn of new business flows” during the next five years alone.
A sharp consumer spending downturn could derail these profit targets. Yet I wouldn’t expect it to derail the FTSE firm’s dividends given its cash-rich balance sheet. The Solvency II capital ratio here was 223% as of December.
HSBC
With a forward yield of 5.7%, HSBC (LSE:HSBA) is currently the highest-yielding bank on the FTSE 100. It’s also one of the blue-chip index’s cheapest based on expected profits.
At 8.8 times, the company’s P/E ratio for this year is lower than that of both NatWest and Lloyds. Given its superior long-term earnings prospects, the stock is even more attractive at current prices.
A strong presence in high-growth Asian markets has been problematic for HSBC more recently. With large exposure to China, it’s been impacted by the economic cooldown there and severe weakness in the country’s property sector.
Yet while fresh US-China tariffs could prolong these issues, the long-term outlook for HSBC’s markets remains hugely compelling in my opinion. Despite rapid growth this century, banking product penetration in Asia remains low. So emerging markets banks like this have significant scope for further revenues expansion as local populations boom and wealth levels steadily grow.
In the meantime, a strong balance sheet should help it continue paying large dividends while current market conditions remain tough. Its CET1 capital ratio was a robust 14.7% as of March, above a target range of 14%-14.5%.
