2024 has so far been a great year for the FTSE 100. Up 7.9% in the year to date, Britain’s blue-chip index is gaining popularity as investors search for beaten-down bargains.
This isn’t a surprise to me. Following years of underperformance, the UK stock market on the whole is packed with excellent stocks that are trading much too cheaply.
Below are two of my favourites. As you can see, both trade on a rock-bottom price-to-earnings (P/E) ratio. They also carry market-beating dividend yields.
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| Company | Forward P/E ratio | Forward dividend yield |
|---|---|---|
| WPP (LSE:WPP) | 8 times | 5.3% |
| Rio Tinto (LSE:RIO) | 8.3 times | 6.8% |
| FTSE 100 average | 10.7 times | 3.5% |
Here’s why I’d love to buy some cheap shares when I next have spare cash to invest.
A top dip-buy?
Advertising’s a highly cyclical market, as latest financials from agency WPP showed. Revenue (less pass-through costs) here dropped 0.5% in the second quarter. This was due to weakness in the UK, Germany and China.
The near-term picture in its key markets remains uncertain. However, over a longer time horizon, I’m expecting the FTSE 100 company to rebound sharply.
Many companies are bringing their advertising and marketing operations in-house. But WPP’s fully integrated end-to-end product offer should mean its services remain in high demand with mammoth organisations across the world, spending from which should increase when economic conditions improve.
I also like the company’s expansion in lucrative emerging markets, from where it currently sources around 33% of revenues.
Finally, I think WPP’s rising investment in digital advertising and artificial intelligence (AI) will pay off handsomely in the coming years. Following its £611m sale of communications and advisory firm FGS Global last month, it has added scope to boost spending in these high-growth areas too.
Another bargain stock
Super-miner Rio Tinto’s low valuation reflects ongoing stress in China’s economy and its impact on commodities demand. While this is a threat, I think increasing my existing stake in the business could be a good idea at today’s low prices.
A rising global population and soaring emerging market wealth has turbocharged metals demand over the past two decades. In that time, Rio Tinto’s share price has soared 223%, while rising profits have provided a stream of generous dividends.
This has made the business a lucrative stock to own since 2004. And with these themes still in play — as well as more modern ones like the green energy transition — the outlook for shareholders remains pretty exciting, in my opinion.
I like mega miners like this because they have considerable resources to maximise this opportunity. Rio Tinto specifically’s making moves to exploit the decarbonisation trend by accelerating investment in copper and aluminium.
Production is ramping up at the Footsie firm’s gigantic Oyu Tolgoi copper mine in Mongolia. It’s also committed $1.1bn to expand its aluminium smelter at Canada’s Jonquière project. These alone could provide exceptional earnings growth in the coming decades.
They’re not without risk. But I think both Rio and WPP could be too cheap for me to ignore at current prices.
