It’s not easy trying to decide which are the best value stocks to buy at any time. And it’s even harder when the stock market is so uncertain.
Perhaps the most common measure is a stock’s price-to-earnings (P/E) ratio. And, right now, some of them in the FTSE 100 are so low it almost hurts my eyes to look at them.
It’s only a rough measure, but it gives us some idea of how many years it might take for a company’s earnings to cover the cost of its shares.
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Rock bottom P/Es
Ideally, the lower the better, though it’s not that simple. A stock with better growth or dividend prospects might, for example, be worth a higher P/E.
I’ve looked over the FTSE 100, and the following table shows the five with the lowest P/E values. At least, those I could find at the time of writing. Different sources show different values, and things can change quickly.
| Stock | Recent price | P/E 2023 | P/E 2024 | P/E 2025 |
|---|---|---|---|---|
| Barclays | 150p | 5.1 | 4.8 | 4.0 |
| NatWest Group | 220p | 5.2 | 5.7 | 5.1 |
| HSBC Holdings | 618p | 6.0 | 5.4 | 6.1 |
| BP | 467p | 6.0 | 6.7 | 6.9 |
| Lloyds Banking Group | 47p | 6.4 | 6.9 | 6.2 |
Sector danger
It’s not often that a whole sector dominates the bottom of the P/E value table. It might not be much of a surprise though that banks fill four of the bottom five slots today.
Let’s try to get some sense of scale on this.
The average P/E for the FTSE 100 over the long term is somewhere around 15. At the moment, at the end of 2023, it’s down around 11. And that does seem to reflect the uncertainty and weak sentiment over the UK stock market today.
But I think that’s still too low for the index. The past year might have been tough, but forecasts show rising earnings and dividends for the Footsie in 2024 and beyond.
Cheap banks
Oh, and you know which stocks they expect to come out on top of the earnings growth table? That’s right, it’s the financial sector. And it’s not by a whisker, it’s by miles.
Do banks really deserve to be valued at only around half the index P/E? Even when the index itself is on a low?
Well, that’s for individual investors to decide for themselves. I’m just putting the numbers out there to try to show where the low-valued shares actually are.
Sector risk
It might be tempting to buy all five of these and see where they go in the next 12 months.
That would open me to a fair bit of sector risk though. And it’s not like the banking industry hasn’t had its own big crashes in the past.
I owned some bank shares when the big crisis kicked off in 2007. But I was saved from big losses by some good diversification.
Still, I think it will be worth looking again at these stocks in another year, and seeing which are in the bottom five then.
