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Forget a Cash ISA! I’d aim to make £1m with these 2 dirt-cheap FTSE 100 stocks

Peter Stephens
Two hands holding champagne glasses toasting each other with Paris in the background

While the FTSE 100 may have experienced a volatile period in recent months, it could offer the chance for a wide range of investors to make a million over the long run.

Certainly, a Cash ISA may offer less risk than investing in the FTSE 100. However, its 1% average returns show that, over the long run, it could in fact lead to reduced spending power.

As such, buying these two top tier shares could be a superior move for investors who are looking to make a million. They seem to offer long-term growth potential, as well as low valuations.

Marks & Spencer

The near-term prospects for Marks & Spencer (LSE: MKS) may be relatively challenging. After all, consumer sentiment is weak, and the retailer is in the process of transitioning from a bricks-&-mortar focused business to being an increasingly online retailer.

This process includes a joint venture with Ocado, which will allow the business to compete more effectively in an era where consumers are increasingly spending online rather than in-store.

With Marks & Spencer currently trading on a price-to-earnings (P/E) ratio of just 7, it appears to offer a wide margin of safety. Although it’s forecast to post flat net profit growth in the current year, the investment it’s making in its omnichannel presence and related online growth potential could lead to an improving outlook over the long run.

As such, for investors with a long-term focus, the company could prove to be a worthwhile purchase that’s capable of a delivering a significant upward rerating over the coming years.

Auto Trader

Another FTSE 100 stock that appears to offer a wide margin of safety is online vehicle marketplace Auto Trader (LSE: AUTO). While its business model is aligned with changing consumer tastes, in terms of being an online operator, weak consumer sentiment looks set to limit growth within the new and used car markets.

Indeed, Brexit is still not resolved, and the next couple of months could include an elevated amount of political and economic uncertainty. This may lead to consumers delaying major spending decisions, such as the purchase of a car, which leads to a challenging operating environment for the new and used vehicle industries.

Despite this, Auto Trader is forecast to post a rise in earnings of 12% in the current year. This follows three years of consecutive double-digit net profit growth, which suggests its business may be relatively resilient within what is a highly cyclical automotive sector.

Since the stock trades on a price-to-earnings growth (PEG) ratio of 1.9, it seems to offer good value for money given its dominant position and growth potential. As such, even though its short-term prospects may be uncertain, it could be worth buying. It has the potential to deliver a relatively high rate of capital growth that may help you to build a seven-figure portfolio in the long run.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader. 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 2019