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Are these 2 FTSE 100 shares too cheap to ignore?

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Shares in the FTSE 100 telecoms group BT (LSE: BT.A) are down over 50% since the start of 2018. For much of 2020, the decline was even worse but the shares have bounced up a little recently. 

The big question now then is will the shares bounce back or continue to fall?

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FTSE 100 share that looks dirt cheap 

My expectation is that the BT shares will recover through this year and beyond. There have been reports of a more upbeat stance towards telecoms in the market than for some time. Partly this is down to the takeover of TalkTalk. I think it’s also partly to do with the rollout of 5G, which provides an opportunity for BT. Consumers will use more data, which is good for its mobile arm, EE.

Sure, telecoms faces challenges. There is a perception among investors that, rather than being racy tech stocks, they are instead more akin to utilities. This is understandable given the steady earnings and high debts.

However, on a rock bottom price-to-earnings ratio of just over 5, I think BT shares are too cheap to ignore. I also think they  are poised for a bounce back. The current P/E is around half of what it has tended to be over the last decade, showing just how cheap the shares are.

The shares already have some recent momentum, which I expect can continue.

A share that’s been on a roller-coaster ride but could soar again

I’ve written before about the three reasons why I think the Rolls-Royce (LSE: RR) share price could rise this year. The reasons were the potential for recovery, its nuclear ambitions, and its potential to move into narrow aircraft.

Positive news on vaccine rollouts will also move forward the time when we can expect air travel to pick up. That in turn will be a big boost for Rolls-Royce. On the other hand, mutations of the virus could set things back.

Given I can’t see into the future, I’m going to take a small gamble that on the balance of probability Rolls-Royce still makes for a good investment, given it’s a cheap FTSE 100 share.

It certainly faces many challenges–some of its own making and many outside its control. But that’s what makes it a potentially profitable investment. Expectations are low at the moment so good news will significantly boost the share price.  

The defence side of the business gives Rolls-Royce some stability and predictability while travel recovers. Management has also taken action, including raising funds, to shore up the balance sheet, so the company should make it through the pandemic.

I think the FTSE 100 engineer is a risky buy because of the ongoing Covid-19 situation. Its shares may well continue to gyrate wildly, but I think the pessimism around the group makes the shares attractive. As Warren Buffett says, though: “Be fearful when others are greedy and be greedy when others are fearful”.

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Andy Ross owns no share 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.

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