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Looking for bargain FTSE 100 shares? I think the Tesco share price looks cheap

The Tesco (LSE: TSCO) share price has taken part in the recent FTSE 100 stock market rebound. The stock is up around 10% from its March low.

But despite this performance, shares in the retailer continue to trade 7% below the level at which they started the year.

As such, now could be a great time to snap up a share in this retail behemoth at a discount price.

Tesco share price value

Tesco is one of the few companies that is unlikely to see a significant decline in sales as a result of the coronavirus crisis.

According to the company’s numbers, sales increased by around 30% year-on-year during the first few weeks of March. To cope with increased demand, Tesco has significantly increased capacity across the business.

Unfortunately, the additional costs incurred by increasing capacity and upping staffing levels will offset the bump in sales for 2020. However, this still means Tesco will report earnings growth this year. That’s better than most of its FTSE 100 peers.

City analysts are forecasting earnings per share of 16.9p for 2020. On this basis, the stock is trading at price-to-earnings (P/E) ratio of 13.9. That implies that the Tesco share price offers a wide margin of safety a current levels.

Furthermore, Tesco has announced that it will pay a dividend this year.

This puts the business in an elite club. Many of its FTSE 100 peers have cut their dividends for the foreseeable future to preserve cash. Based on current projections, the Tesco share price supports a dividend yield of 3.5%.

Investing in a recovery

Clearly, it is unlikely that the UK economy will recover from the coronavirus crisis overnight. It could take weeks or months for economic activity to return to normal.

However, buying high-quality companies with strong balance sheets at low valuations has historically been a successful means of generating high returns in the long run.

The Tesco share price has these qualities. The business’s bottom line seems to be holding up well, and customers are still shopping in the group’s stores.

It’s also in the process of disposing of its Asian business, which will free up billions of pounds in extra capital to reduce debt and pension liabilities. Management has also dangled the prospect of a special dividend in front of investors when the deal is complete.

This should ensure that the business not only makes it through the current crisis, but it could even come out stronger on the other side.

As such, now would be a great time to buy the Tesco share price. While the prospects for the company and the wider FTSE 100 are uncertain in the near term, in the long run, Tesco’s position in the UK retail market should help it produce big profits for investors.

It could be some time before the Tesco share price recovers to its 2020 high point, but in the meantime, investors can pick up that 3.5% dividend yield.

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Rupert Hargreaves does not own any share mentioned. The Motley Fool UK has recommended Tesco. 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.