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These FTSE 100 Companies trade on rock-bottom price-to-earnings (P/E) ratios and boast index-busting dividend yields. But which of them is the best cheap stock to buy next year?
imperial marks
At £18 a share, the tobacco titan imperial marks (LSE:IMB) trades on a forward price-to-earnings ratio of 8.4 times for this financial year (to September 2024). It also carries a powerful dividend yield of 6.1%.
The dangers to big tobacco companies like this one are widely documented. Consumers are quickly turning their backs on traditional tobacco products as regulators accelerate bans on both sales and use. My job is to decide whether the low valuations of these companies fairly reflect this threat to long-term earnings.
FTSE 100 rival British American Tobacco It underlined the magnitude of the pressure on Wednesday when it cut revenue and profit forecasts for next year. He pall mall The manufacturer also wrote down the value of its US brands by a colossal £25 billion.
Tobacco companies have invested heavily in non-combustible technologies to address this decline and drive future growth. Imperial Brands has products such as blue electronic cigarette and is enjoying great success with them. Sales of its so-called Next Generation Products (NGP) increased by 26.4% during the last financial year.
However, the decline in Imperial Brands' traditional operations still deters me from buying this weakened company. Cigarette, cigar and roll-your-own tobacco volumes plummeted 7.1% year-on-year during fiscal 2023. Worryingly, these categories account for more than 90% of the group's turnover.
On top of this, the long-term earnings potential of your NGPs is increasingly threatened by legislative tightening around the world. Just on Tuesday, the French parliament voted to ban single-use e-cigarettes starting next September.
Imperial Brands' share price has fallen 22% over the past five years. I fully expect this long-term bearish trend to continue.
HSBC Holdings
For this reason I plan to invest my hard-earned money elsewhere. banking giant HSBC Holdings (LSE:HSBA) is a weakened Footsie share that I'd rather buy today.
Unlike cigarettes, demand for financial products does not follow the same path as the dodo. Indeed, in HSBC's main Asian market, sales of banking products are expected to take off as wealth and population levels rise.
Investigation suggests that Asia's commercial banking sector will grow at an annualized rate of 18.1% over the decade to 2031. This could provide the basis for long-term earnings and dividend growth in the FTSE 100 company.
It is encouraging that HSBC is directing investment towards these high-growth regions to take advantage of this opportunity. It has already committed $6 billion of investment to China, Hong Kong and Singapore through 2025 in a bid to achieve double-digit profit growth. The expected sale of its businesses in France and Canada early next year will give it even more financial power to grow its business in Asia.
Trade could be choppy in the short term as China's economy falters. But in the long term, I expect HSBC to deliver exceptional profit growth and, with it, fantastic returns for shareholders.