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A P/E ratio below 10 and a 5% dividend yield! I’d buy this FTSE 100 stock in 2020

The general election has delivered a ‘Boris bounce’, and the FTSE 100 is now almost 12% up over the year. It still has a long way to go, to catch up with global markets, as the uncertainty of the last four years put many domestic and global investors off the UK.

Compulsive viewing

If you are after a few stock tips plucked from the FTSE 100, broadcaster ITV (LSE: ITV) is one that caught my eye.

The ITV share price has had a rough ride for some time, falling more than 60% to a low of 110p in the four years to August 2019, but it has since made a rather splendid comeback, rising 40% over the last six months.

So hooray me, because guess what? On 23 August, I wrote that ITV was a terrific bargain, and “could prove a winning high-income recovery play”, if you give it time. I was wrong about giving it time, the recovery happened faster than I expected.

When I wrote that, ITV traded at just 116p, against the 150p you would pay today. The question, as always, is whether the moment of maximum opportunity has passed. I certainly wouldn’t tip ITV to rise another 40% over the next six months, yet at the same time, the outlook still looks bright to me.

Switch on to this high yield

Despite this growth spurt, the £6bn group still trades at just 9.8 times earnings, well below the current average valuation of 18.1 times earnings for the index as a whole. By that metric, ITV looks a pretty tidy bargain, with a good risk/reward ratio.

Sometimes when a company’s share price shoots up, the yield plunges, but this is not the case here. Investors get a generous forecast income of 5.3% a year, covered 1.7 times by earnings.

Now here’s the worrying part: those earnings are set to fall 14% in 2019. That is no doubt reflected in the share price, but City analysts expect another 1% drop in 2020. This is hardly the sign of a flourishing enterprise.

ITV has been hit by the general downturn in TV advertising revenues, which are forecast to fall 2% this year, while its old audience dominance has gone forever, in these days of on-demand TV and binge watching. Its ITV Studios arm is aiming to take advantage of the shift, by meeting the insatiable demand for content, with management expecting it to deliver at least 5% growth in total revenues, with margins of 14% to 16%.

ITV Studios boasts a strong roster of programmes for both the UK and international markets, including Queer Eye, Saturday Night Takeaway, and of course Love Island, now a global phenomenon.

Feel the love

ITV also has BritBox, now “successfully launched” and with management “encouraged by the positive feedback received on the service so far”. It has agreed a distribution and marketing deal with BT and EE, and a content partnership with Channel 4.

Online revenues are rising strongly, which should also partly compensate for the TV advertising downturn, although total revenues will remain under pressure.

ITV certainly has challenges, but it also boasts a strong balance sheet, and keeps delivering on those dividends. I think it’s still a buy for 2020 and beyond.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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.