After falling to 5190.78 points as lockdown was announced, the FTSE 100 has seen a strong post-pandemic recovery, trading at 7047.59 points at the time of writing. Despite this improvement, it is still sitting below its pre-Covid-19 peak, and the recovery hasn’t been felt equally across all sectors: since 2020, Rightmove and Ocado have seen all-time share price highs, whilst Rolls-Royce saw a 15-year low. This leaves me wondering if there is still scope to grab a bargain share.
Looking for a FTSE 100 bargain share is a tricky business, and low price certainly isn’t enough of an indication of ‘good value’. Low prices can indicate that a firm is in (sometimes terminal) decline, and I’m always keen to look out for other indications of quality like sales, earnings, cashflow, debt and future prospects.
My first thought is that IAG (LSE: IAG) could represent a bargain FTSE 100 share. It was hit hard as flights were grounded and the share price has plummeted to 141.72p at the time of writing. But despite continued disruption to the aviation industry, IAG seems to be adapting: its losses are lower than at this point last year, and it has a strong cash position. As a primarily long-haul carrier, it should also benefit when EU-US routes resume. But there are considerable risks: the airline industry is very vulnerable to continued restrictions, and it is not clear whether consumer travel tastes will return to the old normal any time soon. But I am hopeful that IAG will weather the storm: the group is looking to start short-haul operations out of Gatwick, which should allow it to compete with short-haul airlines like Ryanair, who have seen a smoother recovery.
I think that the banking sector could also be a good source of FTSE 100 bargain shares, and I am keeping a keen eye on the Lloyds (LSE: LLOY) share price. At 44.65p, it is still down 30% on its pre-pandemic high, and has the dubious honour of being the cheapest stock on the FTSE 100. But as all investors know, low price doesn’t mean good value and Morgan Stanley downgraded its price target for Lloyds last week. The banking sector had a difficult year, with the Bank of England placing restrictions on bank dividends and buybacks. However, these were lifted in June, providing a vote of confidence that UK bank capital positions are looking strong. I’m also encouraged to see that Lloyds has restored its (meagre!) dividend, and its price-to-earnings ratio is attractively low, at 6.81. Banks tend to be very pro-cyclical, so again, a share price recovery is going to hinge on the pandemic’s continued retreat. However, if we continue to see high demand for mortgages and loans as the economy recovers, I think that Lloyds could be well placed to benefit.
Overall, IAG and Lloyds look like they could be bargain FTSE 100 shares for me to buy now. But I will need to hold my nerve: they are both vulnerable to further Covid-19 restrictions and a weak post-pandemic recovery. I hope that fortune will favour the brave!
