The FTSE 100 may be flying but I can still see plenty of cheap shares on the index worth buying. I’ve spotted three that look really good value, measured by their price-to-earnings ratio (P/E), but that isn’t everything. While I think investors might consider buying two of them, I can’t say the same about the third.
HSBC shares soar
In my opinion, HSBC Holdings (LSE: HSBA) still looks good value despite a stellar run. The Asia-focused bank is up 45% in the past year and 185% over five years. It has rewarded investors with another generous $3bn share buyback programme, yet trades on a lowly P/E ratio of just 10.05. The price-to-book ratio sits at 1.2, which feels modest.
That said, the latest half-year results were disappointing on paper, with a 27% plunge in pre-tax profit to $15.8bn, dragged down by a $2.1bn impairment on its Bank of Communications stake and a $400m charge linked to weakness in Hong Kong commercial property.
Despite these setbacks, adjusted profits beat expectations thanks to wealth management strength. The Chinese economic outlook is patchy, Donald Trump’s tariffs aren’t helping here, and like any investment, future growth isn’t guaranteed. But every stock has risks and these look priced in to me. A solid balance sheet helps here.
JD Sports is a FTSE 100 flop
JD Sports Fashion (LSE: JD) has seen its share price slump 30% in the past year and 45% over two years following a couple of ugly profit warnings.
It now has one of the lowest P/Es in the FTSE 100 at just 6.95. That’s insanely cheap for a profitable company, but there are still challenges.
Full-year results on 21 May showed reported profit down 11.8% to £715m. JD Sports’ American operation, now its largest profit engine, is under pressure, worsened by troubles at key partner Nike. Trump’s tariff uncertainty and the cost-of-living crisis have hurt consumer sentiment generally.
JD Sports remains highly cash-generative, bringing in £2.37bn over the last two years. Investors might consider buying, but it demands patience. Until tariff threats ease, JD Sports may struggle to catch up.
WPP stock scares me
I have no interest in touching WPP (LSE: WPP) right now. The ad giant may seem cheap on a price-to-earnings ratio of just 7.8 but there’s a good reason for that.
Yesterday (7 August) WPP said first-half pre-tax profit dropped 71% to £98m. Weaker ad spending, client losses (which include big guns Coca-Cola and Paramount) and tariffs are inflicting serious pain. The shares are down 44% over the last year and now sit at a 10-year low.
Don’t be fooled by the trailing dividend yield of 10.56%. The board has just halved the interim dividend to 7.5p a share. Incoming CEO Cindy Rose, who replaces Mark Read on 1 September, has a big challenge.
My biggest concern is that artificial intelligence allows potential clients to make their own ads, squeezing the creatives out. WPP is still one of the world’s biggest advertising companies with decades of experience, but will need all that and more to push on from here.
Still, two cheap shares out of three ain’t bad. Investors may consider buying HSBC and JD Sports today, but I think they require a minimum five-year view. Personally, I’m avoiding WPP.
