When people are bewailing the demise of the FTSE 100, it’s usually a good time to be buying. And with the UK’s top index struggling to keep its head above the 6,000 level, there are some great bargains to consider:
Utilities companies have traditionally been seen as cash cows with their consistent high levels of dividends, and for the past few years Centrica (LSE: CNA) has been paying yields of a fraction under 5%. In real terms, the dividend was cut a little last year and is expected to fall a bit more this year, but that’s the nature of the business.
Centrica still pays out the lion’s share of its earnings as cash, and a falling share price is making it look more and more tempting. In fact, with the shares having lost 28% over the past 12 months to just 223p, the forecast yield for this year has risen to 5.2%, with the shares on a lowly P/E of only a little over 12.
Worried about Jeremy Corbyn’s threat to go on a re-nationalisation rampage? Don’t be, because he’s not going to be elected.
A great British bargain
BAE Systems (LSE: BA) had been recovering from its share price slump in 2014, but this year it’s turned tail again and we’re looking at a fall of more than 20% since its March peak.
But the fundamental business is sound, and the firm is looking in a great shape to benefit from the growing Western economic recovery. In fact, at the first-half stage this year, chief executive Ian King spoke of “resilience through an extended period of reduced defence spending“, saying that BAE is “well positioned to benefit from a generally improving market environment“. And that was backed by a rise in sales over the same period a year previously.
Profits aren’t expected to recover until next year, but in the meantime the shares are on a P/E of a little over 11, dropping to around 10.5 based on next year’s forecast. With dividends up around 4.7% and rising, that just looks too cheap to me.
And what about blue-chip stalwart GlaxoSmithKline (LSE: GSK)? A couple of years ago, the problems of patent expiry and generic competition were well known. But the way forward, through a combination of a strengthening development pipeline and careful acquisitions, was already set out, though a return to earnings growth was not expected until 2016 or 2017.
Fundamentally, nothing has changed. In fact, there’s now a growth of 12% in EPS forecast for next year (after a 20% fall this year), and if dividends are maintained as expected, they’ll yield more than 6% (albeit not covered by earnings). And the result? A 24% drop in the share price since April, to 1,290p.
The Summer sale is Still on
All three of these, in my opinion, are fundamentally sound companies with great long-term futures. And that’s exactly what Foolish investors should be looking for, especially when they can be had at knock-down prices.