No one likes overpaying for something. The same applies when it comes to the stock market. I hang my head in shame when I see a stock that I passed over months ago rocketing higher in value. With that in mind, here are two FTSE 100 stocks that I think are good value now, but won’t remain that way forever.
Sneaking under the radar
Sainsbury’s (LSE:SBRY) is one of the largest UK supermarkets. The share price is down 4% over the past year, with it languishing close to 52-week lows at the moment.
The business shared a strategy update at the start of the month that really struck me. It shows the progress that the firm has made over the past few years. For example, in the 2019/20 financial year it recorded an underlying profit before tax of £586m. For the 2023/34 year, this is expected to be £670/700m.
There has also been progress on reducing the net debt. The debt (excluding leases) stood at £1.1bn in 2019/20. It’s expected to be around the £200m mark for the current financial year.
Yet despite these fundamental benefits, the share price isn’t really moving. Granted, this isn’t a problem for income investors, who are picking up a 5.16% yield from the dividends. But I think it’s only a matter of time before the stock starts to move higher to target levels above 300p.
Of course, a risk is that the firm operates in a cut-throat sector. Aggressive competitors and thin profit margins mean that no business is safe in this retail space.
Waiting for a bounce back
The other undervalued stock I’m thinking about buying is Kingfisher (LSE:KGF). The owner of Screwfix and B&Q had a boom period during the pandemic. Yet following the rapid rise in interest rates, people have put DIY projects on hold (or haven’t needed to do work on new homes as they couldn’t afford to buy!)
I believe this is reflected in the 21% fall in the share price over the past year. In light of this, I think the stock is cheap. Interest rates won’t stay above 5% forever. In fact, we could see a rate cut as soon as May. As pressure eases and consumers feel more comfortable about spending, I’d expect to see demand for tools and related products to increase again.
Even though earnings haven’t been spectacular recently, the share price appears to have fallen faster than it should have. This is reflected in the drop in the price-to-earnings ratio to 7.49. Below 10 is where I flag up a company as potentially being undervalued. I feel this is the case for Kingfisher.
Of course, any rebound in the property market and change in interest rates could take longer than expected. This is a risk that I need to consider, as it would impact the share price.
I see value in both stocks for the long term, and so am wanting to buy when I have some spare funds.
