Investing in value stocks can pay off. By putting money into companies that are trading below what they’re actually worth, one can potentially generate healthy profits over the long term. Here, I’m going to highlight two FTSE 100 value stocks that I believe are worth a closer look right now. I’m convinced these shares deserve to be trading at higher levels.
This Footsie giant looks undervalued
First up is pharma giant GSK (LSE: GSK).
GSK shares have fallen over the last year and I think they offer a lot of value today. At present, the company’s forward-looking price-to-earnings ratio (P/E) is just 10.4. That’s a low multiple.
To put that figure in perspective, rival AstraZeneca currently has a P/E ratio of about 20. Meanwhile, the median P/E ratio across the FTSE 100 index is about 14.
GSK’s recent performance has been solid. Last year, sales were up 13% at constant currency to £29.3bn. Meanwhile, adjusted earnings per share were up 15% to 139.7p.
However, what’s spooking investors here is potential Zantac litigation (Zantac was withdrawn from shelves in 2019 after being linked to cancer). This is creating some uncertainty.
I’m encouraged by a recent statement from the pharma giant, however. It said that the scientific consensus across 13 epidemiological studies focused on the product was that there was “no consistent or reliable evidence” that it increases the risk of any cancer.
So, all things considered, I see the stock as undervalued right now.
Trading at a discount to the market
The other value stock I want to highlight today is DS Smith (LSE: SMDS). It’s a sustainable packaging company that serves customers in the e-commerce and food industries.
Like GSK, DS Smith trades at a discount to the market. Currently, the company is expected to generate earnings per share of 42.9p for the year ending 30 April 2023. That puts the stock on a forward-looking P/E ratio of just 7.5.
That seems too low to me.
In a trading update last month, DS Smith told investors that the positive trends in profitability experienced in the first half of the financial year had continued into the second half.
It added that it was positioned well for the remainder of the year and next year.
It’s worth noting here that in the company’s H1 results, it raised its dividend by a huge 25%. That suggests management is confident about the future.
The prospective dividend yield here, by the way, is currently about 5.8%. That’s attractive.
Of course, packaging is a ‘cyclical’ industry. So weak economic conditions are a risk in the short term.
But taking a long-term view, I expect this company to do well. In the years ahead, it should enjoy tailwinds from both the growth of e-commerce and the increasing focus on sustainability.
