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Two value stocks I currently have on my radar are Central (LSE: CNA) and Associated British Foods (LSE: ABF).
Let's dig deeper to help me decide whether I should buy or avoid the stock.
Central
British Gas owner Centrica has enjoyed a boom of late, largely due to rising gas costs.
The shares have fallen 28% in a 12-month period. At this time last year, they were trading at 163 pence, compared with 117 pence today.
The stock looks cheap with a price-to-earnings ratio of around six. To put that into context, FTSE 100 Index The average index is closer to 12.
Thanks to its excellent performance, Centrica has significantly strengthened its balance sheet, which could help it deal with future volatility as well as renewable energy initiatives.
However, the bad patch seems to be over. Half-year results published in July showed profit levels almost halved to just over £1 billion compared with the same period last year. Market conditions have normalised somewhat.
The cyclical nature of stocks like Centrica is a risk. They can be great when things are going their way, such as when gas prices are soaring. However, when things aren't going well in the macroeconomy, there can be a risk that earnings and returns will suffer. Plus, competition in the market is more intense than ever.
However, it is hard to ignore Centrica's dominant position in the market, serving close to 10 million customers. Plus, a 3.5% dividend yield sweetens the investment. However, I understand that dividends are never guaranteed.
Overall, I don't think Centrica stock represents an obvious opportunity for me. I wouldn't rush into buying the stock today, simply because I'd like to see what happens next with the gas price saga, linked to economic and geopolitical turbulence.
Associated British Foods
Associated British Foods operates in a defensive sector through its food products segment. It has also seen tremendous growth in the retail sector through its burgeoning Primark brand, which cannot be ignored.
The shares have risen 3% over a 12-month period, from 2,097 pence at this time last year to current levels of 2,177 pence.
If a different metric is used to value the stock, it trades with a price-to-earnings (PEG) ratio of 0.5. Anything below one indicates good value for money.
Personally, I think a lot of the company's future prospects depend heavily on how well Primark does. However, it is worth noting that the fashion and retail market is extremely competitive, in addition to the fact that it sometimes also involves very tight margins. I will keep an eye on this as earnings and returns could be affected.
However, Primark's popularity appears to be growing and its results seem to be following suit. So much so that the company is aggressively expanding into the US and Europe. This is an exciting development that could catapult profits and shares higher.
Finally, a 3% dividend yield favors investment.
Of the two stocks, ABF looks like a great opportunity to buy cheap shares right now, with a view to continued positive growth over the next few years. I would buy some shares when I can.