The following FTSE 100 shares both trade on rock-bottom price-to-earnings (P/E) ratios. But which should I consider adding to my portfolio in July?
Shell
Fossil fuel giant Shell (LSE:SHEL) trades on a forward P/E ratio of just 10.4 times. This makes it cheaper than BP, too, a share that continues to struggle operationally.
BP shares trade on a forward multiple of 12.2 times.
I prefer the look of Shell because it still retains a considerable interest in renewable energy. The Footsie firm — which operates biofuels, solar, wind, and hydrogen assets, among others — has watered down its green spending plans, and especially in wind power. But for the moment at least, the Footsie business remains committed to building its position in clean energy.
Yet, this doesn’t mean I’m tempted to buy its shares for my portfolio. It continues to source the lion’s share of profits from oil, and investment in this area remains considerable. To my mind, this raises significant dangers as the world transitions towards renewables and nuclear sources.
In the near term, the demand outlook also remains highly risky as new trade tariffs hinder energy consumption in key markets like the US and China. There are also considerable supply dangers as global oil production steadily increases, threatening to leave oil inventories at full-to-bursting.
This weekend, the OPEC+ group of nations is tipped to raise production by another 411,000 barrels a day, taking total hikes since April to around 1.8m barrels. The cartel is expected to continue on this strategy as it rebuilds its market share.
On the other hand, an escalating conflict in the Middle East, which impacts supply, may lift the oil price, along with the Shell share price. But the broader demand and supply outlook now and in the future means I’m content to avoid the oilie.
JD Sports Fashion
Unlike Shell, JD Sports Fashion (LSE:JD.) operates in a market with strong long-term growth potential.
I’m talking about ‘athleisure’ (or ‘sports casual’, as it’s also known). This segment of the fashion sector has expanded rapidly over the past decade in response to changing lifestyles, such as the rise of work-from-home and more people going to the gym.
And it’s tipped for additional substantial growth. Analysts at Grand View Research expect it to expand at an annualised rate of 9.3% between 2024 and 2030.
Encouragingly, premium athleisure is predicted to grow especially strongly, which is JD Sports’ point of focus. Growth here is tipped at 10.5%.
This alone doesn’t make JD Sports a slam dunk buy, though. Its share price has slumped more recently as a tough consumer landscape has damaged sales. It also faces substantial competition from other retailers, and from sportswear companies like Nike that now operate direct-to-customer channels.
But the company has excellent rebound potential in my book. This is underpinned by its long-running expansion strategy, a plan that delivered seismic returns before the recent cost-of-living crisis. It is also replatforming its digital operations to better capture online sales in the US, UK, and Mainland Europe.
Today, JD Sports’ share price commands a forward P/E ratio of 7.6 times. I’ll consider buying this bargain when I next have spare cash to invest.
