Building a retirement nest egg may seem to be a highly challenging process. After all, it must rise to a value that is sufficiently high to provide a passive income for you in older age.
However, with the FTSE 100 currently offering a number of shares that appear to be trading on low valuations, now could be a good time to invest for your long-term future.
With that in mind, here are two large-cap stocks that have valuations which are below their historic averages. As such, they may offer favourable risk/reward ratios at the present time.
Diversified mining company Glencore’s (LSE: GLEN) recent results highlighted the challenging economic environment currently being experienced by the commodities sector. With an ongoing trade dispute between the US and China, this situation may persist over the near term and act as a headwind on the prospects for the business.
However, with Glencore having a diverse range of operations, it seems to be well-placed to contribute to an increasingly low-carbon global economy. Furthermore, its valuation suggests that investors may have priced in the possible risks that it faces. For example, it currently trades on a price-to-earnings (P/E) ratio of just 6. This is below its historic average and indicates that there may be upward re-rating potential ahead.
With the company having improved its financial position in recent years, it seems to be in a relatively strong position to overcome the challenges faced by the wider sector. As such, from a risk/reward standpoint, the stock appears to have long-term growth potential.
Another FTSE 100 share that trades on a low valuation at the present time is Lloyds (LSE: LLOY). It has a P/E ratio of 7 following a recent stock price fall that has seen it decline by 25% since mid-April.
Although the bank reported that its operating conditions have remained robust in its recent results, continued political and economic uncertainty is leading to a softening in business confidence.
As such, the company is seeking to strengthen its competitive advantage, with it having invested £1.5bn in improving the customer experience since 2018. This could differentiate its offering in an increasingly competitive marketplace, and may help Lloyds to overcome the ongoing threat from challenger banks.
The end of PPI in August 2019 could provide a welcome relief for Lloyds, since PPI provisions have weighed on its financial performance over recent years. It may mean there is further capital available for investment in digital growth, or in raising dividends further.
Since the bank now yields over 7% from a shareholder payout that is covered more than twice by net profit, it could offer income investing appeal alongside its long-term share price recovery potential. Therefore, now could be the right time to buy a slice of it for the long run.
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Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.