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£5k to invest? I think this FTSE 100 share price could double

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Buying FTSE 100 stocks after the recent market crash might seem like a risky move. After all, the economic prospects for the UK and the rest of the global economy are highly uncertain.

However, some FTSE 100 companies stand out as being exceptionally undervalued at current levels. As such, buying these blue-chip stocks could prove to be a profitable move over the long run for investors seeking income and capital growth.

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FTSE 100 growth 

One FTSE 100 company that looks hugely undervalued at current levels is asset manager M&G (LSE: MNG). Investor sentiment towards this company has deteriorated substantially over the past few weeks. Its share price is down by 51% in 2020 compared to the FTSE 100’s 22% decline over the same period.

The company has been hit by recent market volatility. Investors have pulled money from its funds as they search for safer assets in a time of uncertainty. 

These outflows are likely to have a significant impact on the group’s bottom line in 2020. According to current City projections, M&G could see a 50% decline in profits this year. That’s a substantial slide for this relatively new public corporation. 

However, a lot depends on how the company fairs throughout the rest of the year. If markets remain volatile throughout, M&G’s profits decline could exceed these forecasts. If markets continue to recover from current levels, the business could outperform. 

And even after factoring in the City’s projected decline in profits for 2020, the stock looks cheap.

Shares in the FTSE 100 asset manager are currently dealing at a forward price-to-earnings (P/E) multiple of just 4.4. That’s compared to the financial service sector average of around 13. 

These numbers suggest shares in the FTSE 100 stock could triple from current levels in the best-case scenario. Or at least double from current levels. If the stock jumped back to 230p, the level it started 2020, that would put it on a forward P/E of around 9. At this level, shares in M&G would still look cheap compared to the rest of the sector. 

Mixed outlook

Having said all of the above, as the outlook for the global economy remains uncertain, it may be best to own M&G as part of a well-diversified portfolio. 

The FTSE 100 stock might look cheap after recent declines but, as of yet, we don’t know how the rest of the year will pan out. The coronavirus crisis may last for the rest of 2020 and into 2021. Alternatively, it could only continue for a few more months. 

As such, the best way to protect against further uncertainty while being able to profit from the value on offer at M&G may be to own the stock with a basket of other investments. This would help minimise risk while maximising upside potential.

Using this approach could improve your long-term financial prospects and increase your chances of achieving substantial capital gains from a possible stock market recovery. 

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Rupert Hargreaves owns shares in M&G PLC. 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.

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