I’m looking for the best cheap FTSE 100 shares to add to my portfolio in April.
More specifically, I’m seeking stocks that trade on price-to-earnings (P/E) ratios below the index average of 14.5 times. I’m also seeking shares whose dividend yield beats the average of 3.8% for FTSE companies.
Here are two on my shopping list today.
HSBC Holdings
Concerns over a global banking crisis might continue to haunt stocks like HSBC Holdings (LSE:HSBA). Yet I believe this bank’s recent share price drop still merits serious attention.
This is because the company now trades on a forward P/E ratio of 5.5 times. Furthermore, HSBC shares carry a gigantic 8.9% dividend yield at current levels.
Things can change quickly. But as I type, there are no signs the worldwide banking system is going to buckle. So I’m considering buying this FTSE 100 bank to capitalise on rocketing financial services demand in Asia.
Analysts at McKinsey & Company have predicted that banking revenues on the continent will rise 7-8% between 2021 to 2026 alone. They reckon this will be “driven by an increased number of consumers accessing financial services and by existing consumers increasing their uptake of services”.
But increasing competition is a huge problem for established banks like HSBC. The digital banks are more agile and their online operations far more sophisticated. They can also offer more attractive products to customers because of their lower cost bases.
This problem is particularly large in Asia. Consumers here place greater importance upon using mobile platforms to do their business.
Yet I still expect HSBC to deliver big profits over the next decade. It’s also investing heavily in its digital operations to capitalise on the digital revolution. And it has the brand power and the scale to remain a huge player in this growing market.
Barratt Developments
Trading conditions for housebuilders like Barratt Developments (LSE:BDEV) are the toughest they’ve been for more than a decade. They could get worse too if the Bank of England continues to raise interest rates.
Construction companies also face the threat of severe worker shortages due to post-Brexit immigration changes. Labour costs could keep rising and build schedules could fall behind.
Yet I believe all of this bad news could be baked into some of these companies’ low valuations. Barratt, for instance, trades on a prospective P/E ratio of just 6.8 times.
In fact, it’s possible the UK homes market will prove more resilient than the market expects. So earnings and dividends may end up beating City forecasts in 2023 and beyond.
There have been a slew of positive trading updates from the industry’s major players (including Barratt) in recent weeks. The latest one from Vistry Group on Wednesday indicated “an improving trend on private sales” since the start of the year.
I think now could be a great time to top up my Barratt holdings then. And especially as its dividend yield for 2023 sits at a juicy 7.6%.
