A lot of FTSE 100 stocks are severely hammered 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. Other things being equal, lower is better.
Bottom of the Footsie
I’ve dug out some FTSE 100 stocks on very low P/E multiples, to see what dirt cheap buys I might find.
There are lots of low forecast P/Es, so I had to narrow it down. I only took those under 10, and I eliminated any that showed a fall in earnings for 2024.
Then I checked past stock price performances, just for fun.
That still left me with a group of 12 stocks to choose from. But it’s a start.
Good value shares?
British American Tobacco
Lloyds Banking Group
St James’s Place
The first thing that strikes me from that table is the number of stocks that are low P/E valuations. And some of them offer some cracking forecast dividends.
I note that all five of the FTSE 100’s banks make the list. Even Standard Chartered, which mostly does corporate finance.
It’s also interesting to see what a wild range of share price performances there are. Some stocks look cheap after big price falls. But others show some impressive gains.
Narrow it down
I can’t afford to buy all of these. And even if I could, I’m sure there are some I wouldn’t want after digging deeper. So how would I go about narrowing down the list?
My first step would be to examine debt. If a firm has high net debt, that can make the P/E seem misleadingly low. And if we add in the debt figure to adjust the P/E, it can look nowhere near as cheap.
BT Group is the obvious candidate to throw out on that measure, with £18.9bn net debt at the last count.
My next port of call would be all those dividends. I’d chuck out a few with very low yields, but that wouldn’t shave many off the total.
It’s not just the yield that counts when it comes to dividends. No, I want to be sure a company has the cash to keep paying them.
So a check on cover by forecast earnings comes next.
And then I’ll examine each firm’s last few sets of results, to see what their free cash flow is like.
And if that’s strong and consistent, I might even buy.
The post These beaten-down FTSE 100 stocks could get my money in 2024 appeared first on The Motley Fool UK.
HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, British American Tobacco P.l.c., HSBC Holdings, Imperial Brands Plc, Lloyds Banking Group Plc, and Standard Chartered Plc. 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.
Motley Fool UK 2023