The Motley Fool

3 Bargain Blue-Chips: Unilever plc, Electrocomponents plc & FirstGroup plc

With the FTSE 100 trading at a lower level than it was at the end of the last century, now could be a great time to stock up on high-quality companies trading at bargain prices. An example of such a business is Unilever (LSE: ULVR), which has seen its share price come under pressure recently as a result of its considerable exposure to the emerging world, where the pace of future growth is in doubt.

In fact, Unilever’s share price fell from over £29 at the start of August to just over £25 by the end of the same month. Since then, though, it has recovered around half of this fall and, looking ahead, vast share price growth could be on the cards.

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That’s because Unilever has an unrivalled stable of branded goods. Even if China and the emerging world grow at a slightly slower pace than was previously predicted, Unilever is still in a prime position to tap into increased wealth and rising demand for branded consumer goods. And, with it having invested £billions in recent years in marketing and ensuring its products are widely available across the emerging world, Unilever’s brand loyalty is already strong in the developing world.

This, combined with a price to earnings (P/E) ratio of 19.6, indicates that Unilever is a very good value purchase at the present time. Certainly, its rating is higher than that of the wider market, but Unilever’s P/E ratio could easily expand beyond 20 and push its shares to an all-time high in the coming years.

Similarly, transport operator FirstGroup (LSE: FGP) also appears to offer long term growth potential. As today’s update from the company shows, it is trading in-line with expectations and is forecast to increase its bottom line by as much as 27% next year. This puts it on a price to earnings growth (PEG) ratio of just 0.3, which indicates that its shares are severely undervalued.

That’s especially the case since FirstGroup’s UK rail business is enjoying a purple patch right now, with today’s announcement highlighting that it continues to deliver excellent passenger revenue growth. Meanwhile, its UK bus division is also enjoying commercial revenue growth and is on-track with its cost-cutting drive, while its other divisions are also coping well amidst challenging trading conditions. As such, FirstGroup appears to have become a stronger business since it posted a loss in 2012, with a doubling of dividends forecast for next year being further evidence of this.

Another blue-chip bargain is Electrocomponents (LSE: ECM). The engineering products distributor today released a slightly disappointing update which shows that the performance of its business has been mixed in recent weeks. While Continental Europe has posted revenue growth in the double-digits, its operations in North America have been somewhat subdued. As such, its revenue growth for the first half of the year is just 4%, with it falling from 5% in the first quarter of the year to 3% in the second quarter.

However, with a review of the business due to be completed in November, now could be a good time to buy a slice of the business ahead of a potentially refreshed strategy. And, with Electrocomponents trading on a PEG ratio of just 1.2 and yielding 6.7%, its shares appear to be a strong buy for long term investors.

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Peter Stephens owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.