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A stock market crash is always a good time to buy stocks cheap, and the banking crisis has just opened up a buying opportunity.
Although the FTSE 100 has rallied for a day or two, it is still trading more than 500 points below its all-time high. Some stocks now look incredibly cheap, including these two.
Now it looks like a great entry point
Shares in the UK’s largest homebuilder, Barratt developments (LSE: BDEV), have plunged 21.34% in the last troubled 12 months and are now trading at just 5.3 times earnings. That’s cheap, though there’s a reason, of course. Analysts are pessimistic about the outlook for the UK property market, with some expecting a 10% or even 20% plunge this year.
That’s a concern, but also an exciting opportunity for a long-term buy-and-hold investor like myself. If you waited until the real estate market was booming before buying Barratt stock, you’d probably have to pay a lot more than you do today. Also, I’ll have missed the dividends in the meantime, and Barratt offers a terrific 8.35% yield.
Although the Bank of England is expected to raise base rates again tomorrow, we must surely be nearing the end of the cycle. If inflation and interest rates start to fall towards the end of the year, homeowners will get a breather and home prices could recover. Like Barratt’s stock, if all goes well.
The risk is that the UK plunges into recession and house prices actually plummet, affecting buyer confidence and Barratt’s forward order book. If inflation remains high at the same time, that will increase input costs. However, it’s a chance I’m willing to take given today’s enticing valuation point and my 10-year minimum term to hold the stock.
I would balance that by investing in Legal and Insurance Group (LSE: LGEN), which is also cheap as chips trading at 6.2 times earnings.
It’s about the dividend
The risk here is that L&G’s asset management operations suffer if we get a full stock market crash. That will hurt customer footfall and reduce the company’s revenue from percentage-based annual management fees.
The dangers are real, but they are partly reflected in the current low valuation. L&G’s share price has fallen 12.8% over the past year, but this has pushed up the dividend yield, which is now a whopping 8.15%.
While higher returns may prove unsustainable, I’m not overly concerned about this one. The current payment is covered twice by earnings and the company has just posted a 12% increase in operating profit to £2.52 billion.
Management is committed to its dividend, which has risen steadily from 16.42 pence per share in 2018 to 19.37 pence in 2022. Last year’s increase was a solid 5% and L&G’s balance sheet looks strong, with a record solvency ratio of 236%.
Given recent disappointing stock price growth, management will work hard to keep investors on par, and keeping a growing dividend is the best way to go.
These are just two cheap FTSE 100 stocks that have caught my eye in recent days. Now I’m building up the cash I need to buy them both, and maybe one or two more.
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