I’m always on the lookout for stock market bargains to add to my portfolio. And two companies have recently attracted my attention, one of which I’ve already bought, and one I’m planning to buy.
Stock market bargains on offer
The first stock is the insurance group Direct Line (LSE: DLG). This enterprise reported a strong trading performance in 2020, as a lower level of accidents helped offset falling sales. As a result, the company’s overall profitability increased as its loss ratio dropped.
But despite Direct Line’s impressive performance last year, the market seems to be avoiding the business. I’m not sure why. The company expects to own a healthy profit margin again this year. What’s more, it’s returning much of its income to shareholders with dividends and share buybacks.
To give an example of the company’s cash return potential, City analysts reckon the business will distribute 24.3p per share this year in dividends. That equates to a dividend yield of 8.4%.
Of course, this is just a projection at this stage. However, I think it clearly shows the company’s income potential.
Those of the reasons why I believe this is one of the best stock market bargains available to buy today. I already own Direct Line in my portfolio and will buy more if the shares continue to decline in value.
Having said all of the above, the UK car insurance industry is incredibly competitive. More often than not, insurers fail to own a return on investment. Direct Line has avoided this fate, so far, but there’s no guarantee it will forever.
Changing of the guard
I think GlaxoSmithKline (LSE: GSK) also qualifies as a stock market bargain today. It’s clear to me why investors have been avoiding the business. It’s been a terrible investment. Over the past 21 years, excluding dividends, the stock has returned -26%.
Still, I think there’s a chance this could be about to change. Management has recently laid out new growth targets. And to help the company accomplish its aims, the group is planning to spin off its consumer healthcare division. This should produce a more focused pharmaceutical business.
I’m sure there’s no guarantee growth will return after these changes, but I’m encouraged by management’s recent actions. The involvement of activist hedge fund Elliott Management has also helped drive change.
As well as these initiatives, the stock looks cheap. It’s trading at a forward price-to-earnings (P/E) multiple of 13.8. Glaxo’s large US peers command multiples of 20 or more.
Therefore, I reckon the combination of the company’s low valuation and its growth objectives suggests now’s the time to buy. That’s why I’d add GSK to my portfolio of stock market bargains, even though there’s a high chance the group may continue to struggle in the years ahead.
Rupert Hargreaves owns shares of Direct Line Insurance. The Motley Fool UK has recommended GlaxoSmithKline. 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.