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A lot FTSE 100 stocks are hit hard right now. But how can we find the best value ones?
Looking at a stock’s price-to-earnings (P/E) ratio is a classic way to start. All things being equal, the lower the better.
I’ve dug up some FTSE 100 stocks with very low P/E multiples, to see what dirt-cheap buys I can find.
There are a lot of low forecast P/Es, so I had to limit them. I only took the ones under 10 years old and removed the ones that showed a drop in earnings by 2024.
Then I checked the past share price performance, just for fun.
That still left me with a group of 12 stocks to choose from. But it’s a start.
Good value stocks?
| Stock | Forecast P/E 2023 |
Forecast P/E 2024 |
Forecast Dividend |
12 months change |
5 years change |
| Barclays | 4.7 | 4.1 | 5.8% | -12% | -twenty-one% |
| British American Tobacco | 6.9 | 6.7 | 9.4% | -27% | -32% |
| BT Group | 7.4 | 7.3 | 6.9% | -12% | -52% |
| Frasers Group | 8.6 | 7.8 | 0.3% | +22% | +153% |
| HSBC Group | 5.6 | 5.2 | 6.9% | +37% | +0.7% |
| Group 3i | 5.9 | 5.5 | 2.7% | +73% | +135% |
| imperial marks | 7.3 | 6.5 | 8.2% | -17% | -35% |
| Lloyds Banking Group | 5.7 | 5.7 | 6.1% | -4.2% | -28% |
| NatWest Group | 4.7 | 4.6 | 7.5% | -sixteen% | -fifteen% |
| Shell | 8.7 | 7.6 | 3.8% | +17% | +11% |
| Santiago Square | 8.9 | 8.9 | 8.7% | -42% | -36% |
| Chartered Standard | 6.4 | 5.5 | 2.2% | +13% | +20% |
The first thing that catches my attention about that table is the number of stocks that have low P/E valuations. And some of them offer incredible dividend forecasts.
I note that all five FTSE 100 banks are listed. Even Standard Chartered, which is primarily in corporate finance.
It is also interesting to see the enormous variety of share price behavior. Some stocks look cheap after big price drops. But others show some impressive progress.
Narrow your search
I can’t afford to buy them all. And even if I could, I’m sure there are some I wouldn’t want after digging deeper. So how would you go about narrowing down the list?
My first step would be to examine the debt. If a company has high net debt, that can make the P/E look deceptively low. And if we add the debt figure to adjust the price/earnings, it may not look so cheap.
BT Group is the obvious candidate to dump on that measure, with net debt of £18.9bn at last count.
Dividends
My next port of call would be all those dividends. I would rule out some with very low yields, but that wouldn’t reduce many of the total.
It’s not just the yield that counts when it comes to dividends. No, I want to be sure the company has the cash to continue paying them.
Therefore, next comes a coverage check based on expected earnings.
And then I’ll look at each company’s latest sets of results to see what their free cash flow looks like.
And if that’s strong and consistent, you might even buy it.
