2 dirt-cheap FTSE 100 shares! Which should I buy in May?

The FTSE index is packed with top value stocks following recent market volatility. Are the following UK blue-chip shares too cheap for me to ignore?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Asian man drinking coffee at home and looking at his phone

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m hunting for the best-value FTSE 100 stocks to add to my portfolio in May. Here are two whose low earnings multiples have caught my eye.

International Consolidated Airlines

The post-pandemic travel surge shows no signs of slowing. Latest data from Europe’s busiest airport, Heathrow, showed that 16.9m passengers passed through its terminals in the first quarter. That was up 74% from the same period in 2022.

This resurgence in citizens’ wanderlust is clear in the trading reports of the world’s major airlines. Take International Consolidated Airlines (LSE:IAG), for example. The British Airways owner’s most recent release showed revenues up 80% in the final three months of last year. During that time, passenger numbers soared by almost two-thirds year on year.

Yet despite the steady stream of good news, I’m not buying IAG shares today. Not even the FTSE flyer’s low price-to-earnings (P/E) ratio of 8.9 times is enough to tempt me in.

I fear that the sustainability of the recent upbeat travel news is looking a tad fragile right now. The global economy is slowing, and high inflation could remain a sticky problem. In this landscape, plane ticket demand from both holidaymakers and business travellers might start to cool.

This is a problem for me when it comes to IAG too. That’s because of the company’s huge debt pile. Net debt has fallen over the past year, thanks to recovering passenger numbers. But at €10.4bn, it remains a big danger that could hamper its growth strategy and affect future dividends.

On top of this, IAG’s profits could be compromised by increasing costs. Rising labour-related expenses and increasing fuel costs as OPEC+ countries cut crude production are an extra worry for me.

WPP

The gloomy economic environment also poses a threat to WPP (LSE:WPP) in the short-to-medium term.

Marketing and advertising budgets are among the first things to be slashed when profits decline. And ad agencies like this could find generating sales increasingly difficult.

To underline this danger, a report from the World Federation of Advertisers shows that 29% of multinational companies plan to reduce ad spend in 2023.

But a bright long-term outlook means I’m still considering buying WPP for my portfolio. It has huge global scale and brand recognition that makes it a leading agency with blue-chip companies. This puts it in a great position to capitalise on the expanding world economy.

I also like the business because of its strong balance sheet. This is helping it to keep expanding its geographical footprint and boost its position in the fast-growing digital segment. The takeover of sonic branding firm amp last week is the latest in a string of acquisitions in early 2023.

Today, WPP’s shares trade on a forward-looking P/E ratio of 9.2 times. They also carry a 4.3% prospective dividend yield, ahead of the 3.5% average for FTSE 100 stocks.

On balance, I think the firm is a top FTSE bargain to buy next month.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »

Investing Articles

Here’s what £10k invested in the FTSE 100 at the start of 2024 would be worth today

Last week's dip gives the wrong impression of the FTSE 100, which has had a pretty solid year once dividends…

Read more »

Investing Articles

UK REITs: a once-in-a-decade passive income opportunity?

As dividend yields hit 10-year highs, Stephen Wright thinks real estate investment trusts could be a great place to consider…

Read more »