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Forget a Cash ISA! I’d aim to make £1m with these 2 ‘dirt-cheap’ FTSE 100 stocks

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Stock markets have been extremely volatile this year. As a result, a number of FTSE 100 stocks are trading at dirt-cheap prices. Such stocks offer investors the chance of making a million in the long run.

The 0.9% interest rate on the top easy-access Cash ISA is never going to make you rich. However, investing in blue-chip FTSE 100 stocks at knockdown prices has the potential to do so. Such stocks could deliver impressive long-term growth in capital and income. So, I’d forget a Cash ISA. Instead, I’d buy cheap top-tier stocks, like these two, for the long term.

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Cheap FTSE 100 stocks #1

The share price of defence giant BAE Systems (LSE: BA) was at a 52-week high of 669p just before the market crash. It’s currently 534p — a 20% discount. I’m confident the share price will return to, and exceed, its previous high, in due course.

Countries around the world continue to spend billions on defence. I can’t see this changing in the coming decades. BAE is a trusted partner of major western governments. These strong customer relationships, as well as the company’s immense technical know-how, give it every opportunity of being a long-term beneficiary of defence spending.

Resilience in the time of coronavirus

BAE reported a “robust performance” in its half-year results last month. It hasn’t been entirely immune to Covid-19 disruption, but the relative resilience of the business is reflected in management’s full-year guidance.

It said it expects underlying earnings per share (EPS) to be a mid-single digit percentage lower than last year’s 45.8p. Assuming the decline is 5%, we’d be looking at 43.5p. This gives a price-to-earnings (P/E) ratio of 12.3 at the current share price. I believe this is a dirt-cheap rating for a high-quality business with reliable cash flows and long-term growth prospects.

Just for good measure, a trailing dividend of 23.2p gives a running yield of 4.3%. This knocks spots off 0.9% from a Cash ISA. Furthermore, I’m confident the dividend is secure and can be increased over time.

Cheap FTSE 100 stocks #2

The share price of luxury fashion house Burberry (LSE: BRBY) has fallen more heavily than BAE’s. Currently 1,435p, it’s at a 38% discount to its 52-week high of 2,329p.

Burberry’s business has been more severely impacted by Covid-19. Also, US-China trade tensions and friction between the UK and China over Hong Kong are probably weighing on investor sentiment. This is because China is a key market for Burberry.

However, I’ve no doubt the long-term story of rising wealth in Asia remains intact. And that Burberry is attractively positioned to be a beneficiary of growing demand for upmarket brands in the coming decades.

Rare and exceptionally valuable

In a trading update last month, the company said it’s seen progressive month-on-month improvement as stores have reopened. However, management cautioned: “We expect it will take time to return to pre-crisis levels.”

Pre-crisis levels produced EPS of 78.9p last year. I’m confident the business can get back to, and exceed, that figure in the future. At the current share price, and on 78.9p EPS, the P/E is 18.2. This is dirt-cheap for a rare and exceptionally valuable global luxury brand.

Looking beyond the Covid-19 earnings hit and a temporary suspension of the dividend, I believe Burberry is another knockdown FTSE 100 stock that could help investors make a million in the long run.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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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