Today I am looking at three FTSE 100 (INDEXFTSE: UKX) that I believe are trading far too cheaply.
Fly away
While market appetite for International Consolidated Airlines (LSE: IAG) may have recovered in recent weeks, the company’s decision to cut its earnings estimates earlier this month underlines the huge pressure facing the airline industry.
IAG advised that it now expects annual EBITDA to average €5.3bn per annum to the end of the decade, down from its prior target of €5.6bn. The firm has consequently reduced its capex target to €1.7bn a year from around €2.5bn previously.
Still, the British Airways owner expects to keep on delivering robust earnings growth to its shareholders — the firm expects earnings per share to expand 12% each year during the period — and this comes as little surprise as ticket sales continue to climb. IAG carried 8.4m passengers in October, up 3.9% from the same 2015 month.
The City may not share IAG’s bearish forecasts, a 3% earnings per share decline in 2017 currently expected. However, this still creates a P/E rating of 6.3 times, well below the big-cap average of 15 times. And the company also boasts a sizeable 4.3% dividend yield.
I believe solid demand for both transatlantic and budget travel makes IAG a great growth pick, particularly at recent prices.
Safe as houses
Fears over the health of the British economy in 2017 and beyond continues to overpower signs of robustness in the domestic housing market, thus keeping the likes of Barratt Developments (LSE: BDEV) on the back foot.
Of course expectations of slowing economic growth cannot be ignored. Indeed, City predictions of a 7% earnings decline at Barratt for the period to June 2017 — the first dip in what would seem an age, if realised — underlines the notion that the stratospheric home prices rises of yesteryear may be drawing to a close.
But I believe the huge imbalance between homes supply and housebuyer demand should support healthy, long-term earnings growth at the Footsie’s property plays. Besides, I reckon that any threats to the sector are more than baked in at current share prices.
Barratt deals on a forward P/E rating of just 9 times, whilst the company also sports a 7.4% dividend yield. I reckon the company is one of the best ‘contrarian’ picks out there at current prices.
Drugs deity
Pharma ace AstraZeneca (LSE: AZN) is undeniably a riskier pick than either IAG or Barratt, certainly in my opinion.
Not only is the company still grappling with exclusivity losses on key products — a factor that is expected to keep earnings falling through to the end of 2017 — but the unpredictable nature of drugs R&D means that a bottom-line bounceback is also harder to call.
Having said that, I am confident that AstraZeneca has what it takes to deliver stunning earnings expansion in the years ahead. The company saw sales across its so-called ‘Growth Platforms’ shoot 6% higher during July-September, and I believe AstraZeneca’s steady successes in the lab, allied with rising healthcare global investment, should keep driving the top line.
And I reckon AstraZeneca’s P/E ratio of 13.9 times for 2017, and 5.1% dividend yield, merits serious attention from value hunters.
