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2 absurdly cheap FTSE 100 value stocks I’d buy and hold for 20 years

I’ve been digging through the FTSE 100 to find the best undervalued shares on the market.

Companies do not make this list lightly. To make the cut these value stocks must be market leaders, have a Warren Buffett-approved strong economic moat, trade at low price-to-earnings (P/E) ratios, and have management making sound decisions for future growth while improving profits, sales, and margins.

Legal & General

I can tell you that once you have Legal & General (LSE:LGEN) in your SIPP or Stocks and Shares ISA, you’ll want to keep adding to it over and over again. Unusually for such a popular stock it provides both income and growth potential, having added a healthy 41% to its share price in the last six months.

It is the UK’s biggest manager of corporate pension schemes. In 2019 LGEN’s retail and retirement business brought in sales 34% higher than the previous year at £829m while the wider business enjoyed particular success from the growing bulk annuities market.

CEO Nigel Wilson moved quickly to take advantage of cheap rates to issue an £11.5bn bond in November 2019, saying “our business continues to go from strength to strength. We remain disciplined in our deployment of capital, and our balance sheet and net cash flow are strong.

The shares are now trading at a low P/E multiple of 10.5 despite a 5.3% dividend yield. At this cheap level it’s a buy for me: in my opinion, the business will be around long after you and I retire to our islands in the sun.

I keep banging on about high-yield giants like Aviva and Legal & General for two simple reasons: I trust management to do a good job, and the business model makes sense.

As Benjamin Franklin wrote: “In this world nothing can be said to be certain, except death and taxes.” While I’d prefer to keep the taxman at arms length, I’d still buy shares in HMRC if I could. Without that option available to me, investing in the best-run companies making money from life insurance seems to me to be an eminently sensible move.

HSBC

Despite the size and strength of its balance sheet, HSBC (LSE:HSBA) doesn’t get the kind of love from retail investors as, say Lloyds or even Barclays bank. That’s a mistake in my eyes.

Its large 6.6% dividend has been stable over time, is forecast to remain at this level for at least the next three years, and its shares are trading at a cheap P/E ratio of just 12 times earnings.

HSBC’s net profit margins improved 3.8% to 24.7% this year, and City analysts suggest average earnings growth of 4.63% by 2021.

In broker Credit Suisse’s recent dissection of the UK banking market, HSBC came out top, with analyst Claire Kane saying there was a “key opportunity to drive return on tangible equity above 11% by 2022…with all the pieces in place” for future success.

While you won’t get the kind of rocketing share price growth available in the best UK smaller companies, HSBC is a FTSE 100 dividend hero. In my opinion, you can tuck it away in your ISA or SIPP and forget about it, creaming off the high-yield dividends year after year.

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Tom Rodgers owns shares in Legal & General. The Motley Fool UK has recommended HSBC Holdings. 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.