Should I buy these FTSE 100 value shares?
The FTSE 100 has rocketed 6% since the beginning of 2023. And late last week it closed at record highs above 7,900 points. Yet the index is still packed with many top value shares.
The following companies trade on price-to-earnings (P/E) ratios below the FTSE index average of 13.5 times. They’re also tipped to pay dividends to their investors this year. But are they really bargain shares to buy or simply investment traps?
Demand for financial services is tipped to continue booming in Asia. It’s why FTSE index giants HSBC and Prudential are both spending billions over the next few years as they pivot towards the faraway continent.
I already own shares in ‘The Pru’ within my Stocks and Shares ISA. And I’m considering snapping up Standard Chartered (LSE:STAN) too in order to capitalise on this increasingly lucrative market. The bank also has considerable operations in fast-growing African countries.
News of upcoming expansion in the key Chinese market has boosted my appetite for the stock even further. Last week the China Securities Regulatory Commission (CSRC) gave the firm approval to establish a securities operation on the mainland.
The new unit will cover underwriting, asset management, own-account trading and broking. It follows Standard Chartered’s pledge a year ago to invest $300m into its China business.
Established banks like this face a growing threat from digital ones. But I believe the rate at which banking product demand in emerging markets is growing still makes the FTSE firm a top buy today.
I believe it’s a highly-attractive investment at current prices too. Today the bank trades on a forward P/E ratio of 7.2 times. A 2.5% dividend yield for this year adds an extra sweetener.
I wouldn’t spend my cash on NatWest Group (LSE:NWG) shares, though. I worry about this FTSE 100 bank’s ability to generate large profits given the bleak outlook for the UK economy in the short-to-medium term.
Unlike StanChart, NatWest is reliant on British customers to drive the bottom line. Unfortunately, the industry forecasts for this market are pretty gloomy.
Economic forecaster EY Club, for example, expects bank-to-business lending to drop 3.8% in 2023. This would be the biggest annual drop for decades. Meanwhile, mortgage lending is tipped to grow just 0.4%. This would be the slowest rate of growth since 2011.
Massive structural issues in the economy like low productivity and labour shortages could plague the bank’s performance too. And many of these dangers threaten to stretch long into the future.
Today NatWest shares trade on a forward P/E ratio of 6.7 times. They also carry a market-beating 5.4% dividend yield. But I feel there’s a strong chance that earnings and dividend forecasts could be downgraded as the year progresses.
Further interest rate rises will boost profits. But I’m not buying the firm’s shares today.
The post Should I buy these FTSE 100 value shares? appeared first on The Motley Fool UK.
HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Royston Wild has positions in Prudential Plc. The Motley Fool UK has recommended HSBC Holdings, Prudential Plc, and Standard Chartered Plc. 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.
Motley Fool UK 2023