Here’s Why Centrica PLC, BAE Systems plc And GlaxoSmithKline plc Look Like Screaming Bargains

When people are bewailing the demise of the FTSE 100, it’s usually a good time to be buying. And with the UK’s top index struggling to keep its head above the 6,000 level, there are some great bargains to consider:

Utilities companies have traditionally been seen as cash cows with their consistent high levels of dividends, and for the past few years Centrica (LSE: CNA) has been paying yields of a fraction under 5%. In real terms, the dividend was cut a little last year and is expected to fall a bit more this year, but that’s the nature of the business.

Centrica still pays out the lion’s share of its earnings as cash, and a falling share price is making it look more and more tempting. In fact, with the shares having lost 28% over the past 12 months to just 223p, the forecast yield for this year has risen to 5.2%, with the shares on a lowly P/E of only a little over 12.

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A great British bargain

BAE Systems (LSE: BA) had been recovering from its share price slump in 2014, but this year it’s turned tail again and we’re looking at a fall of more than 20% since its March peak.

But the fundamental business is sound, and the firm is looking in a great shape to benefit from the growing Western economic recovery. In fact, at the first-half stage this year, chief executive Ian King spoke of “resilience through an extended period of reduced defence spending“, saying that BAE is “well positioned to benefit from a generally improving market environment“. And that was backed by a rise in sales over the same period a year previously.

Profits aren’t expected to recover until next year, but in the meantime the shares are on a P/E of a little over 11, dropping to around 10.5 based on next year’s forecast. With dividends up around 4.7% and rising, that just looks too cheap to me.

And what about blue-chip stalwart GlaxoSmithKline (LSE: GSK)? A couple of years ago, the problems of patent expiry and generic competition were well known. But the way forward, through a combination of a strengthening development pipeline and careful acquisitions, was already set out, though a return to earnings growth was not expected until 2016 or 2017.

Fundamentally, nothing has changed. In fact, there’s now a growth of 12% in EPS forecast for next year (after a 20% fall this year), and if dividends are maintained as expected, they’ll yield more than 6% (albeit not covered by earnings). And the result? A 24% drop in the share price since April, to 1,290p.

The Summer sale is Still on

All three of these, in my opinion, are fundamentally sound companies with great long-term futures. And that’s exactly what Foolish investors should be looking for, especially when they can be had at knock-down prices.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.