With heavy exposure to FTSE 100 shares, my ISA’s taken a bit of a battering recently. But although it’s never pleasant to see my portfolio sink in value, I’m investing for the long term.
With this mindset, I think the recent pullback in the index of the UK’s most valuable listed companies means there’s plenty of value to be had. And with their attractive valuations, here are a few stocks that have recently caught my eye.
Finding value
There are lots of ways of identifying cheap shares but probably the most common is the price-to-earnings (P/E) ratio. As its name suggests, this considers a company’s share price relative to its earnings per share (EPS). In effect, it reveals how much investors are willing to pay for every £1 of profit.
And by looking for stocks with a P/E ratio that’s currently lower than it has been in recent times, it’s possible to identify potentially undervalued stocks. However, a low ratio may indicate a fundamental problem.
But with the five I’ve recently identified I don’t think this is the case. In my opinion, even Diageo — which is experiencing falling revenue and earnings due to changing drinking habits — appears to me to have been over-sold by anxious investors.
| Stock | Current P/E ratio | 5-year average P/E ratio |
|---|---|---|
| International Consolidated Airlines Group | 6.1 | 7.3 |
| JD Sports Fashion (LSE:JD.) | 7.1 | 15.2 |
| Hikma Pharmaceuticals | 7.1 | 11.2 |
| Diageo | 13.8 | 19.1 |
| London Stock Exchange Group | 25.4 | 35.0 |
Yes, all have suffered as a result of the war in the Middle East but, hopefully, this will be over soon.
Of course, I’d have to do more research before considering whether to invest in each of these five but one that I already own is JD Sports Fashion.
Even better
When I first took a stake, I thought the sports retailer’s shares were cheap. Since then, they’ve fallen significantly in the face of US tariffs and a slowing global economy. And the company’s share price could come under further pressure if artificial intelligence wipes out loads of entry-level roles, those that are typically held by JD Sports’ target demographic of 18-to-24-year-olds.
However, despite these threats, I think the group’s shares are now in bargain territory. The athleisure market’s proven to be very resilient in recent years. And Adidas is demonstrating that a 77-year-old brand can be fashionable with the right products and clever marketing. New entrants are also gaining traction.
Analysts are forecasting EPS of 11.37p for JD Sports’ January 2026 financial year (FY26). This implies a P/E ratio of 6.1 compared to a five-year average of 15.2. Based on forecasts for 2028, the multiple drops to just 5.5.
For FY27-FY28, analysts are expecting free cash flow of over £900m.
With the World Cup round the corner, Nike – a key partner of JD Sports — could get a bit of a boost which, in turn, would help lift the British retailer. But the self-styled ‘King of Trainers’ sells all brands of footwear and clothing so it’s not totally dependent on a change in fortunes for the American sportswear giant.
Personally, with its strong balance sheet and healthy cash generation, I think JD Sports is a value stock to consider holding for the long term. The group doesn’t have any immediate plans to buy more stores so I think it will be able to use its spare cash to refresh its existing footprint. On balance, I think the group – like many others on the FTSE 100 – is attractively priced at the moment.
