I’m searching the FTSE 100 for the best cheap stocks to buy next month. Here are two whose low valuations have caught my attention.
Prudential
Demand for insurance products tends to fall during downturns. And so Prudential (LSE:PRU) could endure disappointing profits in 2023 as the global economy struggles.
But with cash to spare, I’d still buy the FTSE 100 share on account of its bright long-term outlook. Thanks to its recent pivot towards Asia, it looks set for terrific earnings growth as personal incomes in the region march higher.
Chief executive Mark FitzPatrick told Sky News last week that “China is massively exciting” due to its scale and noted that “the market is hugely underpenetrated.” He estimates a product penetration rate of just 4% there, well below levels in the US and Europe.
FitzPatrick also talked up The Pru’s vast revenues potential in India. He said that digitalisation “is transforming society” there and making it easier to sell insurance products.
Analysts at McKinsey & Co said that the middle class population in China, India and Southeast Asia will grow to 1.2bn by 2030. That will represent 14% of the global population and provide Prudential with incredible earnings possibilities.
At current levels of £13.10, Prudential’s share price trades on a forward price-to-earnings growth (PEG) ratio of 0.3. This makes it too cheap for value investors to miss, in my opinion. I might buy.
A sub-1 reading indicates that a stock is undervalued.
Barclays
High street bank Barclays (LSE:BARC) doesn’t have exposure to emerging markets. But it does have a large US footprint which gives it added strength through geographical diversification.
Exposure to the world’s largest economy could significantly boost long-term earnings growth. However, I don’t intend to include the FTSE 100 company in my own portfolio today.
The company generates a huge proportion of earnings from the UK. And so it faces a tsunami of loan defaults as the domestic economy enters what could be a deep recession.
There was a 36% increase in the number of firms in “critical financial distress” last quarter, according to insolvency specialist Begbies Traynor. Data elsewhere shows that individuals are also struggling to pay their bills as the cost-of-living crisis endures.
In this environment, the recent rise in loan impairments at Britain’s banks looks set to continue. At the same time, Barclays and other established banks face poor revenues, due to the weak economy and the improving popularity of digital banks. The rapid growth of its internet-based competitors is a significant risk to long-term profits too.
Today, Barclays’ share price commands a price-to-earnings (P/E) ratio of 5.5 times. The bank also carries a FTSE 100-beating 5% dividend yield at current prices.
But I believe Barclays shares are still too risky for investors despite this cheapness. I’d much rather buy other UK value stocks next month.
