Value investors on the hunt for FTSE 100 bargains now have a much tougher job. Confidence is pouring into the market on news of potential Covid-19 vaccine treatments.
And that means share prices are rising. But I think there are still good FTSE 100 buys to be made today. Here’s two I’ve got my eye on.
What are FTSE 100 bargains
If this was my first year of investing I probably wouldn’t have believed the suggestion back in March I should buy FTSE 100 bargains cheaply.
Things looked bleak all around. It was hard to get any perspective while the market crashed. The pressure to sell, to retain something — even from a portfolio of FTSE 100 bargains — was immense.
But I’ve been around the block a few times. So I’ve scoured the market and found a couple of companies I think are still FTSE 100 bargains today.
What’s good value now
I’ll start with Anglo American (LSE:AAL). Apart from a blip in 2016, the FTSE 100 multinational miner has historically paid very high dividends in the region of $1 per share.
In July, Anglo American CEO Mark Cutifani did cut AAL’s 2020 interim dividend by over half, from $0.62 to $0.28. But it still represents a nearly 5% yield for the year. And I see the Covid-19 disruption that hurt Anglo American’s earnings coming to an end next year.
It operates in South Africa for its diamond business, in Australia for coal and gold, and Brazil for nickel, cobalt, and iron ore. It has huge economies of scale.
Today, AAL shares are trading very cheaply at a price-to-earnings ratio of just 10. That reads like it’s one of our much sought-after FTSE 100 bargains.
And I’m looking at Anglo American as a cheap way to get exposure to the rapid growth in the battery metals market.
Cobalt, a highly-conductive metal, and nickel, mainly used in stainless steel production, are critical to boost the energy density of rechargeable lithium-ion batteries. These power almost every modern mobile computing device, as well as electric vehicles. This is an industry I see growing really strongly over the next 5 to 10 years. So my picks and shovels play here is a literal one!
Phone home
The other company with beaten-down shares I’m looking at is Vodafone (LSE:VOD). Yes, the telecoms giant has popped up in my screener as one of the best FTSE 100 bargains I’d buy now. No, its lossmaking Indian arm is not doing spectacularly well at present. And the company does have a lot of debt.
But a 6.5% dividend yield makes the shares attractive to me. Then there’s the little matter of it having over 600 million customers. I first read that and I thought, ‘that can’t be right’. Well it’s actually more. It’s 625 million! Across 65 countries. And all those customers bring in £4.5bn in cash every year.
There are also developments on the horizon that I think could turn the Vodafone share price outlook around. One is the plan to list its profitable mobile phone mast division Vantage Towers in 2021.
This could really capitalise on booming 5G demand. And it could be worth between £10bn and £12bn. So making this a separate company on the Frankfurt Stock Exchange could certainly help Vodafone pay off its debts.
So there are FTSE 100 bargains out there if you look. I’d start with these two today.
