Since the start of the year, the FTSE 100 has fallen by almost 15%. The threat posed by coronavirus on the world economy has weighed on investor sentiment, and could continue to do so in the short run.
As such, this could be an opportune moment to buy undervalued FTSE 100 shares for the long term. They appear to offer wide margins of safety in many cases, which could translate into capital growth.
With that in mind, here are two large-cap shares which could be worth buying today. Their dividend prospects may add further appeal to their recovery potential.
British American Tobacco
The recent results from British American Tobacco (LSE: BATS) show it’s making progress in delivering its strategy. For example, it’s been able to improve its balance sheet through debt reduction, while increasing its sales of reduced-risk products, such as e-cigarettes. This could help to improve its long-term performance, and may convince sceptical investors it’s moving in the right direction.
Of course, the tobacco industry faces an uncertain future. Regulatory change in the US, for example, could lead to a lower sales growth rate for next-generation products. As such, British American Tobacco trades on a price-to-earnings (P/E) ratio of just 9 and has a dividend yield of 7.3%. These figures suggest investors have priced in the potential difficulties which may be ahead for the business, and there may be scope for a stock price recovery over the coming year.
With the FTSE 100 having experienced a significant decline of late, British American Tobacco’s defensive characteristics could make it a more popular share among investors. As such, now could be the right time to buy a slice of it.
Vodafone
Another FTSE 100 share which has experienced a challenging period over the past few years is Vodafone (LSE: VOD). Its financial performance has been disappointing, and has led to a reduction in its dividend.
Despite this, the stock still yields 5.5%. Moreover, it’s expected to produce double-digit earnings growth over the next three years. This may enable it to pay a fast-rising dividend which leads to an increasing appeal for income-seeking investors. In addition, the stock has a forward P/E ratio of around 13.5. This suggests it offers good value for money compared to its historic valuation, and trades with a wide margin of safety included in its stock price.
Looking ahead, Vodafone’s simplification strategy may enhance its competitive position and improve its financial performance yet further. Although the prospects for the world economy may be somewhat uncertain at present, the company has a diverse range of operations across a wide geographical spread.
Therefore, it may be relatively well-placed to overcome the potential slowdown in the world economy, and could deliver a sound total return in the coming years.
