The FTSE 100 index of elite shares continues to rocket. This week it hit new record peaks above 10,700 points, taking gains over the last year to 23%. In today’s climate, it’s extremely challenging for investors to discover cheap quality stocks to buy.
Or is it? My research has just thrown up two bona-fide bargains I think are too good to ignore. Babcock International (LSE:BAB) and Sage Group (LSE:SGE) both offer exceptional value for money at current prices.
But what makes them worthy of your attention today? Read on.
A FTSE 100 momentum stock
Babcock shares have been playing catch-up to the broader defence sector in recent times. Yet despite more than doubling in value over the past year, the Footsie firm still offers market-beating value. At £14.14 per share, its forward price-to-earnings (P/E) ratio of 22.3 times is one of the lowest in the sector.
It’s true that Babcock is less geographically diversified that many blue-chip defence companies. It sources around 75% of total sales from the UK. That said, with the government taking steps to supercharge defence spending — it’s one of NATO’s frontrunners in terms of hiking spending — this doesn’t cause me too much discomfort right now.
Rising revenues and improving margins drove operating profit 27% higher in the first half, illustrating Babcock’s ability to capture business in the current favourable climate. Its contract backlog is also rising and was up £400m year on year as of September, at £9.9bn.
I think it could be one of the sector’s big winners as NATO nations rapidly rebuild their arsenals.
A top dip buy?
Sage is possibly one of the most ‘at-risk’ FTSE shares when it comes to price volatility. Fears over the potential impact of artificial intelligence (AI) on software stocks like this aren’t going away any time soon. AI could decimate their revenues if businesses choose more cost-effective options.
But at current prices, I think Sage shares are worth a close look from those who don’t follow the herd. At 823p, the firm trades on a forward P/E ratio of 17.8 times following recent price falls. That’s far below the 10-year average of roughly 31.
The company provides accounting, payroll, and human resources software. And it’s earned universal trust for handling these critical tasks. Will companies want to risk upsetting the apple cart by trusting these to AI? It’s possible, but I’m not sure. Besides, the cost of Sage’s services are negligible in the broader scheme of companies’ overall outgoings. I don’t see customers flocking to AI in large enough numbers to materially hurt revenues.
It’s also worth noting the FTSE 100 share has spent heavily on its own AI tools. And it is seeing some success, its Sage Copilot helping drive organic revenues 10% higher during September-December. As dip buys go, I think this is one of the best to consider.
