The FTSE 100 index has yet to break above the highs seen at the start of 2020 before the pandemic hit. It currently trades just above 7,200 points. Last year, it was trading above 7,600 points during periods in Q1. This leads me to conclude that there are still some bargain FTSE 100 stocks out there. With my personal view that we could be looking ahead at a potential boom period, I’m thinking of buying a host of stocks now.
Looking in the right places
It’s one thing to have a gut feeling that there are some bargains to be had, but quite another to correctly identify the specific FTSE 100 stocks to buy. To help me in this regard, I can use different filters. For example, one filter I can use is to look at stocks that have fallen over the past year. In my opinion, it’s these stocks that should offer greater bargains than a stock that has doubled in valued over the same period!
Another filter I can look at is the price-to-earnings ratio. This looks at not just a cheap share price, but relative cheapness. For example, just because a FTSE 100 stock might have a low share price, if it’s loss-making then it might be one to stay away from.
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There are many other filters I can use, but I like the above two for bargain hunting. One note of caution is that both points rely on past information. So I am making assumptions about the future based on the past. I don’t think this is wrong, but at the same time I need to be careful not to place too much importance on just the past.
FTSE 100 bargain stocks
Based on the above, there are several FTSE 100 stocks I’m considering buying. In brackets after each name is the percentage return over the past year and the P/E ratio.
Hargreaves Lansdown (-10%/24.8) is a UK-based investment platform. Recent full-year results missed analysts expectations, however they weren’t terrible. Profit after tax fell slightly from £313m to £296m, but it on-boarded a record 233,000 net new clients. The risk is that these new clients don’t convert into profitable customers, but if they do then growth into 2021 should pay dividends.
Polymetal International (-23%/8.97) is a gold and silver mining company. With the gold price down 10.2% over the past year, it has clearly been a drag on performance. Yet the P/E ratio looks very attractive, suggesting it could be an undervalued FTSE 100 stock. Another benefit of buying shares is the attractive dividends being paid. At present, the dividend yield sits at 6.27%.
GlaxoSmithKline (-7%/12.44) are a well known global pharmaceutical firm. In the recent Q2 update, reported earnings per share (EPS) came in at 27.9p, down 39% on the same period last year. This isn’t positive in the short run. However, I think the stock is a long-term value play given the strong history of the company and efforts with a Covid-19 vaccine.
Overall, I think that with applying the right filters, I can find FTSE 100 stocks that offer me good value in the long run.
