Investing £3k in the FTSE 100 today might not deliver strong returns in the short term. The world economy is facing extremely challenging conditions that could cause stocks to languish for some time.
However, over the long run, the FTSE 100 is likely to recover from its crash and go on to post new highs — as it has following each of its previous downturns.
With that in mind, here are three cheap FTSE 100 stocks that appear too cheap to pass up after the market’s recent slump.
FTSE 100 income champion
BHP (LSE: BHP) is one of the few FTSE 100 companies that haven’t cut their dividends this year. This could be because the business continues to experience strong demand for its output.
Coronavirus has also had a relatively limited impact on the group’s operations. It has continued to maintain production at most of its sites. While there has been some limited disruption, management expects to hit the company’s initial production targets for the year.
Despite this positive outlook, shares in the miner have fallen by 21% this year. As such, the stock appears to offer a wide margin of safety at current levels. It’s trading at a forward price-to-earnings (P/E) ratio of just 10. That’s around 30% cheaper than its long-term average. It also supports a dividend yield of 6.8%.
These numbers suggest this FTSE 100 dividend champion could deliver a more substantial share price performance than its peers over the next few years.
Another global FTSE 100 champion that could have the potential to generate robust returns in the years ahead is Anglo American (LSE: AAL).
The coronavirus crisis has significantly impacted Anglo. In response, the company has acted quickly to cut capital spending and operating expenses. These initiatives should help the business save several billion dollars over the next year. On top of these initiatives, the group has $14.5bn of liquidity to help see it through the crisis.
Anglo has also said it remains committed to its dividend for the time being. This suggests its yield of 5.6% is safe for the time being.
The above implies this FTSE 100 company may be in a stronger position to survive severe operating conditions over the short term. Therefore, after falling 35% year-to-date, the shares appear to offer good value as well as the potential for large profits over the long run.
Taylor Wimpey (LSE: TW) might not have the international diversification offered by the companies above, but this FTSE 100 dividend champion seems to have a bright future.
While the coronavirus crisis has thrown a cloud of uncertainty over the UK housing market in the short term, in the long run, it’s clear the market still remains structurally undersupplied.
This suggests homebuilders should prosper over the long run. Ultra-low interest rates and government initiatives to spur home buying may also encourage house price growth.
With that in mind, Taylor looks like it could be an excellent investment in a booming sector. The company may continue to face continued uncertainty in the short run, but over the next few years, demand for homes should only grow. That would be great news for the firm’s sales and bottom line.
Now could be a great time to take advantage of the market’s short-term thinking and snap up a share in the business.
Rupert Hargreaves 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.