3 Stocks Trading FAR Too Cheaply: BAE Systems plc, Ashtead Group PLC & Royal Mail PLC

Today I’m looking at three London stars offering spectacular bang for your buck.

Firing on all cylinders

As Chinese economic cooling continues to cast fears over the health of the global economy, I believe weapons builder BAE Systems (LSE: BA) could prove a canny purchase in 2016 and potentially beyond.

The defence sector has traditionally been a go-to destination for those seeking reliable earnings growth. Defence budgets in key regions the US and UK are back on the mend and Western customers are facing an increasingly-challenging geopolitical environment. I believe demand for BAE Systems’ hardware should gallop in the years ahead.

This view is shared by the City and the London business is expected to punch a 5% earnings advance in 2016 alone. BAE Systems subsequently deals on a P/E rating of 13.1 times, comfortably below the threshold of 15 times that indicates attractive value.

And BAE Systems’ improving outlook is expected to provide its progressive dividend policy with plenty of fuel, too – an anticipated reward of 21.5p per share for 2016 yields an impressive 4.2%.

Power up your portfolio

Like BAE Systems, I believe that Ashtead Group (LSE: AHT) – which rents out power generators for a broad range of industrial and construction purposes – is on course to deliver stunning returns in the coming years.

The company advised last month that rental revenues leapt 18% between May and October, to £1.13bn, a result that propelled pre-tax profit 21% higher to £342.7m. And I expect performance to continue to impress as Ashtead’s geographical and sector diversification pays off, and its Sunbelt and A-Plant brands continue to grab market share.

The number crunchers also expect Ashtead to keep its strong growth record rolling in the 12 months to April 2016, and a predicted 24% surge leaves the business dealing on a P/E ratio of just 13.6 times. And this readout falls to 11.7 times for fiscal 2017 amid expectations of an 18% bottom line jump.

While dividend yields of 1.7% and 1.9% for 2016 and 2017, respectively, may not set hearts racing, Ashtead’s commitment to chunky payout increases warrants serious attention from long-term investors in my opinion. Indeed, the dividend is expected to leap 15% in the current period to 17.3p per share, and by an extra 13% next year to 19.9p.

Ready to post stunning returns?

Despite the terminal decline in the letters market, I believe surging parcel volumes at home and abroad should make Royal Mail (LSE: RMG) a lucrative stock selection in the years to come, helped in no small part by the firm’s control of the UK postal market.

Huge restructuring costs at Royal Mail are expected to push earnings 20% lower in the year to March 2016. But a reduction in such expenses – combined with a chunky revenues jump – is anticipated to push the bottom line 10% higher in 2017. Consequently a very decent P/E rating of 12.3 times for the current period falls to just 11.5 times for next year.

On top of this, projected dividends of 21.7p per share for 2016 and 22.7p for next year create jumbo yields of 4.6% and 4.9%. Like BAE Systems and Ashtead, I believe Royal Mail is a terrific long-term pick for both growth and income hunters.

But whether or not you share my bullish assessments, and are looking to significantly boost your investment returns elsewhere, I strongly recommend you check out this special Fool report that could help you become a market millionaire!

Our Ten Steps To Making A Million In The Market report highlights how fast-growth small-caps and beaten-down bargains are all fertile candidates to produce tenfold returns.

Click here to enjoy this exclusive 'wealth report' - it's 100% free and comes with no obligation.

Royston Wild has no position in any shares mentioned. 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.