I’m on a quest to find the best-value FTSE 100 stocks to buy. Here are two cheap blue-chip shares on my radar right now.
Too cheap to miss?
The pressure on UK consumers is rising as the cost of essential goods goes through the roof. According to researcher Kantar the price of groceries in Britain rose 4.3% in February. That’s the fastest rate of growth since autumn 2013.
In this environment shoppers will have to become savvier when it comes to stretching their shopping budgets. And this bodes well for Associated British Foods (LSE: ABF) and in particular its Primark division. I expect demand for the low-cost clothes it sells to pick up strongly as people switch down from more expensive clothing brands.
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Associated British Foods isn’t immune to soaring inflation itself. Increasing input costs are a problem for its food and ingredients business as well as at Primark. But over the long term, I believe the benefits of owning this stock could outweigh the risks. The value retail market was already tipped to grow strongly before the recent inflationary surge. And the FTSE 100 firm’s announced plans to turbocharge global expansion at Primark to fully exploit this retail trend as well.
City analysts think Associated British Foods’ profits will soar 73% this fiscal year (to September 2022). This leaves it trading on a forward price-to-earnings growth (PEG) ratio of 0.2, well inside bargain territory of 1 and below. As a value investor, this looks too good for me to miss.
A FTSE 100 dividend stock on my wishlist
I also believe HSBC Holdings (LSE: HSBA) offers stunning bang for my buck right now. Forecasters think earnings at the Asia-focused bank will rise 8% year on year in 2022. This leaves the company trading on a modest price-to-earnings (P/E) ratio of just 9.9 times.
What’s more, HSBC also provides better dividend prospects than much of the FTSE 100. The yield here sits at a meaty 4.3% for this year, well above the broader Footsie average of 3.6%.
Plenty of UK shares face significant disruption following recent tragic events in Ukraine. In this respect HSBC is no exception. Some Asian countries it services (like China) have economic ties to Russia and so stand to lose out as economically crippling sanctions are imposed on Moscow. That being said, I’d be prepared to accept this risk given the cheapness of HSBC’s shares.
In fact I’d buy the FTSE 100 bank as the long-term profits outlook here remains robust. Financial product penetration in Asia remains quite low compared to in the West. At the same time, wealth levels in these emerging markets are tipped to keep rising strongly. It’s a combination that has led ratings agency Fitch to predict loan growth of 12% in China this year alone.
I think HSBC, with its wide wingspan across Asian territories is well placed to exploit this market opportunity. And I think it could make me some fat returns in the process.
