This year’s market sell-off has left some FTSE 100 shares trading 30%-40% lower than one year ago. I think these brutal slumps means some good businesses are trading at bargain levels.
Today I want to look at three cheap FTSE 100 stocks that have caught my eye, including one I’ve already bought.
A boxed-up bargain
My first choice is cardboard packaging specialist DS Smith (LSE: SMDS). I already hold this share in my portfolio, but I’d be very happy to buy more at the current share price.
DS Smith’s recent results showed sales rose by 21% to £7,241m last year, while operating profit rose by 45% to £443m.
When profits rise faster than sales it normally means profit margins have increased, and that’s what happened here. The company says it was able to pass on higher costs to customers by putting up its prices. Demand was strong too, with box volumes up by 5.4%.
I think consumer demand could fall in a widespread recession. But I’m reassured by progress last year and continued debt reduction.
DS Smith’s share price has fallen by 35% over the last 12 months. That’s left the stock trading on just eight times earnings, with a 6% dividend yield. That looks cheap to me.
A contrarian bargain?
My next pick is FTSE 100 advertising group WPP (LSE: WPP). Shares in this business have fallen by 35% since the invasion of Ukraine, but so far trading has been largely unaffected.
WPP’s underlying revenue rose by 9.5% to £2,574m during the first three months of 2022. This growth was driven by strong trading in top markets, including China and the USA
This strong start gave chief executive Mark Read enough confidence to upgrade his sales forecasts for the year, despite the uncertain economic outlook.
Big clients such as Unilever and Coca-Cola might cut their spending in a recession. But as with DS Smith, I think WPP is already priced for bad news. The shares trade on less than nine times forecast earnings, with a 5% dividend yield.
I’d be happy to add the shares to my long-term portfolio at this level.
This discount retailer looks cheap!
My final pick is value retailer B&M European Value (LSE: BME). B&M’s distinctive mix of food, household and seasonal products is popular with shoppers. The company’s core UK store estate has expanded from 400 shops in 2014 to over 700 today.
During the pandemic, B&M benefited from being able to stay open as an essential retailer. A post-Covid slowdown was inevitable, and we’re seeing that at the moment. Like-for-like UK store sales fell by 9% during the 12 weeks to 25 June, compared to the same period last year.
I’m not too concerned. I expect B&M to return to growth once the pandemic boost has faded. Rising costs are a potential concern, as they could put pressure on profit margins. However, I think the experienced management team should be able handle this.
B&M shares have fallen by nearly 30% over the last year. That’s left this FTSE 100 stock trading on 10 times forecast earnings, with a 5% dividend yield. I’d be very comfortable buying B&M at current prices.