Buying cheap UK shares after the stock market crash may not seem to be a sound means for an investor to improve their financial position. After all, indexes such as the FTSE 100 and FTSE 250 are down over 20% year-to-date.
With that in mind, here are two FTSE 100 stocks that could prove to be undervalued. They may improve an investor’s financial situation in the long run.
Outperformance versus other UK shares
The BHP (LSE: BHP) share price has been consistently ahead of other UK shares since the start of the year. The mining company’s shares have fallen by 14% this year versus a 24% decline for the FTSE 100.
Despite this, the stock appears to offer relatively good value for money. For example, it has a price-to-earnings (P/E) ratio of just 9. Meanwhile, it is expected to deliver a 17% rise in earnings per share in the current financial year. Clearly, this figure could change depending on economic circumstances. However, it suggests that the stock offers a wide margin of safety during a turbulent economic period.
BHP’s recent investor updates have shown that it maintains a solid balance sheet and a competitive cost base. These attributes could help it to overcome a global economic slowdown better than many of its industry peers. As such, it could offer long-term total return potential compared to other UK shares while it appears to trade at a wide discount to its intrinsic value.
An attractive dividend yield relative to the FTSE 100
Vodafone’s (LSE: VOD) recent updates suggest it has the capacity to deliver a resilient performance relative to other UK shares. The company’s first-quarter update highlighted its defensive characteristics, with sales declining modestly due partly to some disruption from the coronavirus pandemic. As such, it is on track to meet its medium-term financial guidance and is making progress in delivering in areas such as digital and efficiency improvements.
The company’s dividend yield currently stands at almost 8%. That’s over three percentage points higher than the FTSE 100’s dividend yield of 4.7%. It suggests that the stock offers an attractive passive income opportunity that could make it an increasingly popular choice for investors at a time when low interest rates make income opportunities elsewhere much more limited.
Vodafone’s yield also indicates that it offers good value for money relative to many of its FTSE 100 index peers. This could mean that it has the potential to deliver impressive capital returns over the long run. As such, it could produce higher returns than assets such as gold and Bitcoin after their price rises in 2020.
Peter Stephens owns shares of BHP Group and Vodafone. 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.