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The great thing about buying individual FTSE 100 stocks instead of tracking the index is that there are always opportunities out there. The blue-chip index may have hit another all-time closing high of 10,124.6 on Friday (8 January), but not every stock is flying.
Instead of chasing momentum, lots of investors prefer to target undervalued stocks, in the hope of benefitting when they swing back into favour. I’m one of them. And despite the FTSE 100’s blockbuster performance, I can still see plenty of bargains.
Sainsbury’s shares got cheaper last week
Even though the index climbed another 0.8% on Friday, more than 20 shares fell. The biggest faller was supermarket chain Sainsbury’s (LSE: SBRY), which slumped 5.29% on the day.
Investors were unimpressed by its Christmas trading update, even though it posted a 5% increase in grocery sales in the six weeks to 3 January.
Investors retreated as cash-strapped consumers spent less at subsidiary Argos. Sainsbury’s looks cheaper as a result, with its price-to-earnings (P/E) ratio down to 13.5, comfortably below the FTSE 100 average of around 20. The trailing dividend yield is 4.4%, so there’s income on offer as well as share price recovery potential, and forecasts suggest it could hit 6.2% in the year ahead.
As ever, there are risks. If the economy slows further and unemployment rises, profits could come under pressure. But for long-term investors, this could be a buying opportunity to consider. I can see plenty more out there.
King of trainers JD Sports has a P/E of just 6.8, although I’d urge caution here. It’s suffered two poor Christmases in a row, and with consumers struggling generally, it may be heading for another disappointment. The JD share price dipped last week after Bank of America downgraded sportswear retailers. I’ve gone big on this stock but may gave to wait another year or two (or three) for the recovery story to play out.
Undervalued stock opportunities?
Could budget airline easyJet finally take off this year? It certainly looks cheap with a P/E of 7.6, as does rival International Consolidated Airlines Group, which owns British Airways. IAG’s shares are up 35% in a year and 180% over two, yet it still trades on a P/E of just 8.8.
Falling oil prices have dragged down Shell, another apparent bargain with a P/E of 9.4, while energy group Centrica sits on 9.5. That’s bargain-basement territory, although investors should dig into why the shares are so cheap. Oil could struggle this year too
BT Group looks interesting on a P/E of just 9.6. I’ve also been building a big position in FTSE 100 dark horse Bunzl, whose shares have slumped 35% over the last year, cutting its P/E to 10.7. I think it still has huge comeback potential, but as with JD Sports, patience is required. Housebuilder Berkeley Group Holdings, which has a P/E of on 10.8, and Marks and Spencer Group on 11.1, have scope to make up lost ground.
Then there’s paper and packaging group Mondi and property firm Land Securities Group, both on P/Es of 12.8 and offering yields of more than 6%.
The FTSE 100 is flying, but there are still potential bargains to be had. Just remember that there’s more to a good investment than a low price.
