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Is the Santander share price the FTSE 100 bargain of 2018?

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Even though the FTSE 100 has made gains in recent months, a number of stocks continue to offer growth at a reasonable price. Indeed, even during a bull market, some stocks remain unfavoured among investors. This can provide an opportunity for other investors to benefit.

One company which seems to offer a low valuation and bright future prospects is Santander (LSE: BNC). However, it’s not the only FTSE 100 share which could prove to be a bargain at the present time.

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Margin of safety

The price-to-earnings (P/E) ratio of Santander is exceptionally low. Using forecast earnings for the current year, it has a rating of 9.5. This suggests that investors are cautious about its outlook, with a mixed performance in its key markets potentially being a reason for this.

In the UK, for example, the company’s recent results were somewhat disappointing. With Brexit now only a matter of months away, a more cautious outlook is beginning to take shape, with economic growth rates having been downgraded by the Bank of England in recent months.

However, with the company having exposure to a wide range of economies, the UK’s performance continues to be offset by growth elsewhere. For example, the US has seen its performance pick up, while Brazil continues to deliver improvements after a tough period.

As such, Santander’s earnings growth outlook for the next couple of years is positive. It is expected to report a rise in its bottom line of 7% this year, followed by further growth of 11% next year. This puts it on a price-to-earnings growth (PEG) ratio of around 0.9, which suggests that it could offer a wide margin of safety. As such, it could be a strong growth and value opportunity over the medium term.

Growth potential

Also offering good value for money within the FTSE 100 is plumbing and heating products specialist Ferguson (LSE: FERG). The company released positive third quarter results on Tuesday which showed that ongoing revenue was 10.2% higher than last year. This included 7.1% organic growth, while the gross margin increased by 40 basis points to 29.3%.

With the company’s performance across all US regions being generally positive, the prospects for the business remain bright. Trading conditions have been strong in the US and Canada, while the restructuring plan in the UK continues to be executed. So far, its fourth quarter performance has also been positive, which suggests a successful outcome for the full year.

Looking ahead, Ferguson is expected to post a rise in earnings of 7% in the current year, followed by further growth of 17% next year. Despite this, it has a PEG ratio of just 1.2, which indicates that there may be a wide margin of safety on offer. As a result, and with the company’s prospects being bright in a growing US economy, now could be the right time to buy the stock for the long term.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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