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The 3 Cheapest FTSE 100 Stocks? Aviva plc, 3i Group plc And Smiths Group plc

With the FTSE 100 having fallen by over 8% in the last six months, a number of its constituents are now trading on very appealing valuations. For example, insurance company Aviva (LSE: AV) has a price to earnings (P/E) ratio of just 11, which is a significant discount to the FTSE 100’s P/E ratio of 14.

Furthermore, Aviva is forecast to increase its earnings by almost 12% next year and this puts it on a forward P/E ratio of just 9.8. Were its rating to increase so that it is in-line with that of the wider index, it would lead to share price growth of around 43%, which would clearly be a very positive result for its investors.

Of course, Aviva’s purchase of Friends Life could be a reason why its valuation is being held back. It’s a major step for a company which was a loss-making entity just three years ago and, while the combined company is so far delivering on its planned cost savings and synergies, there remains a degree of scepticism among some investors regarding Aviva’s ability to dominate the life insurance market over the medium to long term. For value investors, though, the risk of this appears to be far outweighed by the potential reward, making Aviva a hugely appealing buy at the present time.

Similarly, Smiths Group (LSE: SMIN) is also a very cheap stock. It trades on a yield of 4% and this indicates that its shares offer good value for money, especially since it pays out just half of its net profit as a dividend. For a relatively mature business with sound finances and growth prospects, which over the last five years have been no higher than those of the wider market, its payout ratio appears to be rather low.

In fact, if Smiths Group were to pay out two-thirds of profit as a dividend it would still leave it with sufficient capital to reinvest for future growth. It would also mean that its shares yield 5.4%, thereby highlighting the good value that they offer, and could also act as a positive catalyst for investor sentiment over the medium to long term. Certainly, Smiths Group has disappointed in the last year, with its shares falling by 18%. But, with a wide margin of safety, now appears to be a good time to buy a slice of it.

Meanwhile, 3i (LSE: III) trades on a P/E ratio of just 8.4, which indicates significant upward re-rating potential. Of course, 3i’s bottom line is coming under pressure, with a fall of 20% forecast for the current year, followed by a further fall of 2% next year. However, even when this is taken into account, there is still a very wide margin of safety on offer for long term investors.

Looking ahead, a potential catalyst to push 3i’s share price higher is a rising dividend, with current shareholder payouts being covered 3.6 times, even when the aforementioned profit falls are taken into account. So, while 3i has disappointed in the last three months, with falls of 9% following a strong first part of 2015, it seems to be a top notch value play for the long run.

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Peter Stephens owns shares of 3i Group, Aviva, and Smiths Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.