The FTSE 100 is known for its high-quality stocks that often tend to be highly priced. However, there are a few stocks that are so cheap and undervalued, I simply can’t ignore them.
These two may be going cheap at the moment, but that doesn’t mean that they aren’t worth your money. I believe that they could be on the rise so would invest now in order to reap the benefits.
International Consolidated Airlines (LSE: IAG) is one of the world’s largest airline groups, being the owner of British Airways and Iberia. IAG is one of the cheapest stocks on the FTSE 100. Could it be the most undervalued company ever?
Last year, IAG’s return on equity was a huge 35%. This is more than just impressive, putting the company in the top 10% of the most profitable public business on the London market. On top of this, city analysts predict a huge €2.3bn net profit for this year. However, the stock has a P/E of just 4.2, 67% lower than the market average.
So what’s going on? Perhaps it’s knee-deep in debt? Nope. In fact, IAG has operating cash levels of 2.43x its total debt. This demonstrates how the company has more than enough cash to cover any borrowings. It seems to me that IAG is criminally undervalued and I think now is the time to buy. It’s not often that I see such a high-performing company priced so low.
The low price could be put down to the unpredictability of airline companies. Fuel costs, interest rates and the threat of strikes can always impact earnings. Such issues explain the low valuation as they mean uncertainty, which investors hate. But that valuation does seem extreme considering IAG’s recent successes.
I’d grab the opportunity with both hands to invest in IAG while it appears to be mis-priced as I feel the low cost could lead to big profits in the future.
British Land (LSE: BLND) is one of the largest property development and investment companies in the UK. Some 45% of its portfolio is in retail property, which has understandably dragged down the valuation. However, the other 55% of the portfolio provides a much more promising outlook.
The company’s best assets are prime-location London offices, which always tend to be in high demand. Yet the stock is currently trading at a whopping 45% discount to net asset value. However, the current dividend yield of 6.7% makes me very tempted indeed.
The UK property market has looked to be extremely uncertain of late. Although, as the company invests in more stable areas such as flexible workspace and build-to-rent, I see a positive outlook. I think investors will be making a very wise decision to invest in a stock priced so low with a great dividend yield. The next few years may be unstable but I see steady returns in the future.
fional has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co. 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.