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Sub-10 P/E ratios and 6.5% dividend yields! Should you buy these FTSE 100 stocks for your ISA?

I’m sure that BHP Group (LSE: BHP) is highly attractive to many an income chaser working on a tight budget. At current prices the mining colossus trades on just 10.5 times forward earnings, while a monster 6.5% corresponding dividend yield makes mincemeat of the Footsie’s broader average of 4.8%.

It’s not a share I’m willing to touch with a bargepole, though. City analysts might be predicting a 14% earnings rise this fiscal year (to June 2020), but there’s plenty of reason to expect such an estimate to be chopped down given the strain that US-Chinese trade wars are exerting on an already-struggling global economy.

And this bodes ill for BHP making good on broker expectations of a full-year dividend of 139 US cents per share. Dividend coverage already sits at below 1.5 times, a long way short of the accepted safety barometer of 2 times plus.

Bad data

I’ve long struck a cautious tone on BHP and many of its sector colleagues and the latest economic data from China today exacerbated my concern. Latest official manufacturing PMI came in at 49.3 for October, the sixth month that the gauge has been below the expansionary/contractionary watermark of 50. This was also the worst reading since February.

Clearly, then, the demand outlook for the FTSE 100 firm’s copper, coal, nickel, and iron ore is looking less than robust as we move into the new calendar year. To illustrate how the slumping Asian economy is affecting commodity consumption, latest SteelHome figures on iron ore stockpiles at Chinese reports came in at 134.1m tonnes, the highest level for six months. No wonder prices of the steelmaking ingredient slumped afterwards.

BHP’s cheap but it’s cheap for a reason. A worsening economic outlook for 2020 casts doubt over its near-term profits outlook, while aggressive production increases in core markets like iron ore threaten its earnings picture into the next decade.

A better buy?

Could Kingfisher (LSE: KGF) be considered a better investment destination for your cash?

It’s even cheaper than BHP from an earnings perspective – its forward price-to-earnings ratio of 9.7 times sits inside the bargain-benchmark terrain of 10 times, in fact – while the retailer’s corresponding dividend yield of 5.2% beats the FTSE 100 average by around half a percentage point.

Kingfisher might not be as affected by a slowing Chinese economy as BHP but the prospect of a prolonged and economically damaging Brexit process carries its own threats. This was evident in the latest KPMG/Ipsos Retail Think Tank gauge which fell to a record low of 75 in the third quarter, and which the researchers expect to drop to a fresh nadir of 74 in quarter four.

Due to deteriorating trading conditions both in the UK and Ireland and in France, the DIY giant saw like-for-like sales drop 1.8% in the six months to July, and recent retail reports like the one above suggest that things have worsened since then.

The business appointed a new chief executive in Bernard Bot, late of Travelport Worldwide and TNT Express, this month to jump start its flagging operations, but in view of a sinking domestic economy he’ll have a mountain to climb to get Kingfisher firing again. For these reasons I’m happy to avoid Kingfisher, like BHP, and to put my money elsewhere.

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Royston Wild 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.