Does the recent market drop make these 2 shares too cheap to ignore?

Could these FTSE 100 (INDEXFTSE: UKX) stocks be absolute bargains now? Andy Ross takes a look at two companies that have caught his eye.

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Until last week, the FTSE 100 had been steadily rising throughout 2019 after a bad end to the previous year. Having risen to over 7,600 the FTSE 100 crashed down temporarily to below 7,200 as fears of a trade war between the US and China intensified. While that fear for investors hasn’t fully gone away (and in my opinion is likely to keep cropping up for a while), I think the latest dip has presented some possible buying opportunities for investors with a long-term mindset. 

These two companies in particular I thought were good before the dip. Now with their share prices reduced by around 10% on average, I think they could be a bargain to buy now and hold.

Keep calm and hold

Prudential (LSE: PRU) shares seemed to be among the hardest hit in the latest market fall. The share price since the start of August is down by around 13%. It’s hard to see why it has been hit more than other companies. The planned split of its business now has more clarity with the M&GPrudential business to be spun off in the fourth quarter of this year. Half-year results showed the demerger isn’t proving too distracting as there was strong first-half growth in the US and Asia and the dividend was lifted.

The results showed group operating profit from continuing operations rose 14% to £2.02bn, double-digit growth coming from the Asian business and 14% operating profit growth from the US. As I’ve said before when covering Prudential, I think there’s plenty of potential for higher dividends and the business is tapping into some important trends that should see it succeed longer term, for example, the growth of insurance in Asia and rising global wealth. The shares right now look cheap to me with a P/E of under 10 and a dividend yield of 3.4%.

Powering upwards

Shares in engineer Rolls-Royce (LSE: RR) have also tanked, but unlike Prudential, the result can be attributed to results from the company that came out unfortunately at the same time that the wider FTSE 100 fell, hitting the share price twice.

Overall it remains a good business with opportunities for improvement that should feed through into the share price. The positives from the latest half-year results showed operating profits jumped 32% to £203m. Under CEO Warren East, the restructuring at the engineer continues apace and this should benefit shareholders as the company becomes leaner and can get better results from its huge £600m a year R&D expenditure. A leaner, more focused, group should be more profitable.

The results did show that challenges remain. The group reported statutory interim pre-tax losses of £791m against £1.2bn a year ago. Rolls said problems with its Trent 1000 turbines were still causing some customer disruption, while it hiked the estimated in-service costs of dealing with the issue by £100m over the next three years.

Yet once it addresses these issues, I think it’ll be able to deliver shareholder value, the shares will be re-rated and the company will be able to grow the dividend. For investors with a long-term mindset, the shares are now looking much cheaper and could well rise much higher from their current position on future good news.

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.

Andy Ross owns shares in Prudential. The Motley Fool UK has recommended Prudential. 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.

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