Searching for bargain stocks can be a minefield for new investors. Many FTSE 100 stocks, for example, trade on rock-bottom valuations as worries over the global economy mount and market volatility ratchets up.
But how does an investor separate the bona-fide bargains from the dangerous duds? The following stocks offer solid all-round value, but which of them should I buy for my portfolio right now?
Tesco
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Today, Tesco (LSE:TSCO) shares offers attractive all-round value. Britain’s largest retailer trades on a forward price-to-earnings (P/E) ratio of 12.3 times. This is below the FTSE 100 average of 14.5 times.
Its corresponding dividend yield meanwhile sits at 4.1%. This is just above the 3.8% index average.
Tesco has many weapons in its arsenal. It’s why the business has sat at the top of the domestic grocery market for decades. Its 27.1% market share (according to Kantar Worldpanel for the 12 weeks to 14 May) is miles ahead of second-placed J Sainsbury’s 14.8%.
The company’s Clubcard has been a formidable customer magnet for many years. The constant stream of money-off vouchers it gives customers has enabled its share to remain stable, even during economic downturns. And it could remain a huge asset for years to come.
Yet the pulling power of Clubcard is under threat as rapid expansion among value retailers Aldi and Lidl continues. This — along with rapid price cutting among more established supermarkets — is pulling margins down across the industry.
Tesco’s own adjusted operating margin slipped 0.54% over the 12 months to February, to 3.8%. And the pressure on margins will worsen if government plans for price caps on basic food items come into force. Such initiatives will likely be voluntary, but the pressure for supermarkets to join would also be immense.
I fear the supermarket will be a disappointing profits grower from this point forwards. So I will continue avoiding its shares despite their cheap valuation.
WPP
Advertising agencies like WPP (LSE:WPP) face an uncertain outlook in the short-to-medium term as the global economy weakens. Marketing related spending is one of the first things on the chopping block during downturns.
But I’d much rather buy this FTSE 100 stock over Tesco. I believe it has a much brighter future as it builds scale and invests to exploit fast-growing digital channels and technology. This is what pushed like-for-like net revenues 4.9% higher during the first quarter.
As a potential investor I’m also highly encouraged by the company’s plans for artificial intelligence (AI). It said last month that AI will become “fundamental” part of the business, a pledge that could see it pull away from its competitors. The scope for AI is colossal as companies seek to operate with greater efficiency.
I’m also attracted to the company because of its wide geograhic footprint. Its presence in 110 countries helps to reduce risk and gives it solid exposure to rapidly-expanding emerging markets.
Today, WPP trades on a P/E multiple of just 8.5 times for 2023. And it offers a juicy 4.7% dividend yield for this year, making it an excellent buy for income investors.
