A quick glance at the FTSE 100 shows there are plenty of cheap shares around right now. That’s hardly surprising given current volatility. Time to go shopping?
The FTSE 100 has withstood today’s geopolitical worries remarkably well, slipping less than 2% over the last month. It’s still up 18.5% over 12 months, with dividends on top. Sectors such as defence, energy and mining have proved resilient amid Middle East turmoil. But some individual stocks have taken a real beating.
I usually consider a company cheap when its price-to-earnings ratio falls below 12 or 13, and really cheap when it drops into single digits. These two are trading at fractional values.
Reckitt shares are down
Health, hygiene and home-care group Reckitt Benckiser (LSE: RKT), which owns brands such as Dettol, Nurofen, Durex and Gaviscon, has a P/E of just 0.6. Last time I looked, it was above 20. Yet on 5 March it reported a solid 5% rise in full-year revenues to £14.2bn, helped by strong growth in emerging markets. Adjusted pre-tax profits climbed 5.2% to £3.32bn.
The board also increased the total full-year dividend by 5% to 212.2p. That follows on the heels of a 235p special dividend in February.
Despite that, the shares have dropped 17% in the last month and are up just 2.5% over the year. They’re roughly 15% lower than five years ago.
Trading is weaker in Europe, as a mild winter hits demand for cold and flu remedies. Consumer goods stocks have also fallen out of favour more broadly as investors fear the Iran war will drive up inflation. Reckitt has struggled to regain the market’s confidence after years of bumpy performance and investors seem reluctant to give it the benefit of the doubt today.
Personally, I think Reckitt is worth considering with a long-term view, especially with a trailing dividend yield close to 4%. Yet I’m a little wary. Right now, investors just aren’t that into it.
Legal & General shares are also flat
Legal & General Group (LSE: LGEN) looks even cheaper on paper. Its P/E sits around 0.3, which is nonsensically low. Earnings per share growth has been jumping around all over the place lately, as my table shows. So has the P/E.
| 2021 | 2022 | 2023 | 2024 | 2025 | |
| Earnings per share growth | 55 % | -62 % | -43 % | 2,322 % | 367 % |
| P/E ratio | 8.7 | 19.4 | 34.2 | 1.3 | 0.3 |
Legal & General should be doing better, having announced its biggest ever share buyback on 11 March, worth £1.2bn. Full-year core operating profit rose about 6% to £1.62bn, but that was slightly below forecasts.
The number most investors focus on is the yield, now the highest on the FTSE 100 at 8.9% on a trailing basis. The board just increased the payout 2%, which looks set to be the benchmark going forward. The catch is that it’s only covered around 1.1 times by earnings, so it isn’t completely bulletproof.
The Legal & General share price has slipped roughly 8% during the recent market turbulence. It’s up only about 2.5% over the last year and remains roughly 15% lower than five years ago.
I think it’s worth considering for income-focused investors but we may have to wait some time to see sustained growth. Both these shares look ridiculously cheap to me but they have their issues too.
