Legal & General Group plc isn’t the only FTSE 100 value stock I’d buy today

Roland Head explains why Legal & General Group plc (LON:LGEN) is one of his top FTSE 100 (INDEXFTSE:UKX) picks.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Hunting for value in the FTSE 100 isn’t easy at the moment. Although some good quality companies trade on modest valuations, they’re often cyclical business such as housebuilders, which are currently reporting record earnings.

Today I’m going to look at two heavyweight dividend stocks which I believe offer genuine value for long-term investors.

A buying opportunity

Shares of the world’s largest advertising group, WPP (LSE: WPP), fell by 10% this morning after the company reported a slowdown in like-for-like sales and a weaker outlook for client spending.

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

The group’s reported revenue rose by 13% to £7.4bn during the first half. However, this figure was flattered by acquisitions and currency effects. If we ignore exchange rate changes, then revenue only rose by 1.9%. And if we strip out acquisitions, like-for-like (LFL) revenue actually fell by 0.3%.

It’s a similar story for headline pre-tax profit, which rose by 15% to £793m, but was only 1.8% higher on a constant currency basis.

These figures might have been fine, except that WPP also revealed that LFL revenue fell by 4.1% in July. The company said that revenue was lower than last year in all regions, except the UK, Latin American and Central & Eastern Europe. That means sales are falling in the company’s biggest market, North America.

WPP stock has now fallen by 22% so far this year. Today’s results won’t help. The company’s full-year guidance is now for LFL revenue growth of just zero to 1%. Given this, why would I consider buying what appears to be a falling knife?

Long view

There are two reasons. The first is that this is a market-leading business with a long-term outlook. WPP’s continual small acquisitions have enabled the group to progressively ramp up its exposure to digital marketing, which now accounts for 41% of revenue.

The second reason is that although the shares could have further to fall, I think a fair amount of bad news is already in the price. After today’s fall, the stock trades on a forecast P/E of about 11, with a prospective yield of 4.5%. I reckon that could be a good entry point for a long-term holding.

A super income play

Legal & General Group (LSE: LGEN) has increased its profits by an average of 11.5% per year since 2011. And that’s not just an optimistic ‘adjusted’ figure. It’s real profit. The company has defied gloomy predictions that changes to the pension system would hammer its profits.

Instead, Legal & General has used its size to become a market leader in the new business of de-risking corporate pensions by taking over their liabilities. The group is also growing its investment management arm and its capital businesses, which invests in property and infrastructure.

The group’s overall return on equity rose from 17.7% to 19.6% in 2016, and cash generation has been consistently good. Shareholders have been rewarded with dividend growth averaging 17% per year since 2011.

Legal & General shares currently traded on a forecast P/E of 11 with a forecast yield of 5.8%. Although profits could be hit by a UK recession or property crash, I’d expect this to be a short-term disruption rather than a long-term problem. In my view, these shares remain a solid income buy.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

More on Investing Articles

Google office headquarters
Investing Articles

$1bn a day! This S&P 500 share still looks like a stock market bargain after Q1 earnings

The owner of Google and YouTube just announced strong results to the stock market, including another massive $70bn share buyback.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

3 cheap FTSE 100 stocks with big dividends to consider buying right now

Sector weakness in some FTSE 100 industries has also left some of my long-term favourite stocks offering attractive dividend yields.

Read more »

Diverse children studying outdoors
Growth Shares

Forecast: £1,000 invested in Rolls-Royce shares could be worth this much by next year

Jon Smith talks through both his opinion and analysts’ forecasts when trying to predict where Rolls-Royce shares could head from…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

£5,000 invested in Lloyds shares 5 years ago is now worth…

The price of Lloyds shares has more than doubled over the past five years. However, our writer’s cautious about the…

Read more »

Finger clicking a button marked 'Buy' on a keyboard
Investing Articles

Up 58% in a year, the BT share price could be the FTSE 100 target to beat in 2025

The BT share price has been steadily climbing back since newish boss Allison Kirkby came on board. Is the new…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

£10,000 invested in Nvidia stock 5 years ago is now worth…

Even after the Nvidia stock falls of the past couple of months, its five-year performance remains stunning. And it could…

Read more »

Man thinking about artificial intelligence investing algorithms
Investing Articles

I asked ChatGPT for the best UK stocks to buy for my portfolio in the market sell-off. Here’s what it said

When Edward Sheldon asked the generative AI app for the best stocks to buy amid the market pullback, he was…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Could now be a rewarding moment to buy shares?

Christopher Ruane's looking for shares to buy in a turbulent market. But while he's focused on quality, he's equally interested…

Read more »