I have been eyeing some FTSE 100 shares in recent weeks because I think they look cheap. Sure, the flagship index of blue-chip companies has hit record highs this year. But I think some of the companies within it are offering potentially good value and are worth considering.
Here are three of them, all dividend payers.
Diageo
This week, I bought some more shares in Guinness brewer Diageo (LSE: DGE).
Over the past five years, the Diageo share price has fallen 31%. Yes, it has raised its dividend per share annually for decades. But dividends are never guaranteed to last – and the City is clearly nervous about weakening business performance. The past several weeks saw the Diageo share price hit its lowest price since 2016.
What has been going on? Weak demand in Latin America is a problem in itself. But there is a bigger risk — a warning signal of wider demand weakness to come elsewhere.
Many premium-priced spirits are seeing customers cut back their spending, while over the long run the number of younger people drinking alcohol has been heading downhill.
Still, the market remains huge – and lucrative. Diageo is highly profitable thanks to extensive manufacturing and distribution operations that can tap into its portfolio of iconic, unique brands.
JD Sports
In the short term, JD Sports (LSE: JD) shares continue to show a lot of price volatility. I have sold a few shares along the way to bank some profits.
From a long-term investing perspective, I continue to see the FTSE 100 retailer as undervalued and it is currently the biggest holding in my SIPP, by some distance.
Nike has had a rough few years, impacting JD as the US footwear giant accounts of a sizeable chunk of its sales. A weak economy also poses a threat to revenues. The first quarter saw JD’s like-for-like sales revenues decline 2% compared to the same period last year.
But its massive expansion in recent years, through acquisitions and new store openings, means it is still set to grow total revenues this year.
It is highly cash generative, has a net cash position (excluding lease liabilities) and a proven business model with a sizeable customer base. Last year, operating profit before adjusting items after interest on lease liabilities was £0.9bn. Yet its current market capitalisation is a cheap-looking £4.5bn.
Reckitt
FTSE 100 consumer goods giant Reckitt (LSE: RKT) has seen its share price grow 17% so far this year.
But that still leaves it a third cheaper than five years ago.
Reckitt is now a different investment proposition than it was then, admittedly. The pandemic era boom in demand for its hygiene products such as Lysol has eased. The long-term financial impact of its disastrous 2017 infant formula acquisition continues to ricochet across the company’s financial results. One ongoing risk it poses is liability costs from lawsuits currently in progress.
Stepping back though, Reckitt continues to have significant strengths. They include a well-known brand portfolio and proven business model.
I see the price-to-earnings ratio of 15 as a relatively modest valuation: FTSE 100 rivals Unilever and Haleon are on 23 and 24 respectively.
Reckitt’s dividend yield of 4% is above Unilever’s and more than double Haleon’s. I see it as a share investors should consider.
