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Buying UK stocks cheap after the stock market crash may not seem like a viable means for an investor to improve their financial position. After all, indices like the FTSE 100 and FTSE 250 have dropped by more than 20% year to date.
However, in the long run, the equity market could experience a strong recovery. As such, it can offer greater potential for capital appreciation than more popular assets such as gold and Bitcoin.
With that in mind, here are two FTSE 100 stocks that may prove to be undervalued. They can improve a long-term investor’s financial situation.
Outperformance versus other UK stocks
The BHP (LSE: BHP) the share price has been consistently higher than other UK shares since the beginning of the year. Shares in the mining company were down 14% this year versus a 24% drop for the FTSE 100.
Despite this, the title appears to offer relatively good value for money. For example, it has a price-to-earnings (P / E) ratio of just 9. Meanwhile, earnings per share are expected to rise by 17% in the current financial year. Clearly, this figure could change depending on economic circumstances. However, it suggests that the stock offers a large margin of safety during a turbulent economic period.
BHP’s recent investor updates have shown that it maintains a solid balance sheet and competitive cost base. These attributes could help him weather a global economic slowdown better than many of his industry peers. As such, it could offer long-term total return potential compared to other UK stocks, while appearing to trade at a large discount to its intrinsic value.
An attractive dividend yield compared to the FTSE 100
VodafoneRecent updates to (LSE: VOD) suggest it has the ability to deliver resilient performance compared to other UK stocks. The company’s first-quarter update highlighted its defensive characteristics, with sales declining modestly due in part to some outages from the coronavirus pandemic. As such, it is on track to meet its medium-term financial orientations and is making progress in delivering it in areas such as digital and improving efficiency.
The company’s dividend yield is currently nearly 8%. This is over three percentage points higher than the FTSE 100’s dividend yield of 4.7%. He suggests that the stock offers an attractive passive income opportunity that could make it an increasingly popular choice for investors at a time when low interest rates make income opportunities elsewhere much more limited.
Vodafone’s performance also indicates that it offers good value for money compared to many of its competitors on the FTSE 100 Index. This could mean that it has the potential to deliver substantial returns on long-term capital. As such, it could produce higher returns than assets like gold and Bitcoin following their price hike in 2020.
Peter Stephens owns shares in BHP Group and Vodafone. The Motley Fool UK has no position in any of the shares mentioned. The views expressed about the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we provide in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a wide range of insights make us better investors.
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