2 stocks that look absurdly cheap right now
With the current stock market bull run now in its ninth year, investors could be forgiven for thinking there were no more stocks available on cheap valuations. But they’d be wrong.
Profits climb skywards
Despite what you might have heard, the market isn’t efficient, and there are always stocks available at bargain prices, if you know where to look that is. Certainly, many stocks on lowly valuations are cheap for a reason, perhaps due to cyclicality, high levels of debt, or simply deteriorating fundamentals.
Nevertheless, previously-popular sectors can often be shunned by the market for no apparent reason with some companies genuinely mis-priced.
British Airways owner International Consolidated Airlines Group (LSE: IAG) may be trading on a bargain valuation, but by no means does that reflect the company’s recent performance. The FTSE 100 group which also owns Spanish airlines Iberia and Vueling, as well as Irish flag carrier Aer Lingus, has seen profits climb skywards over the past few years, overturning a €774m pre-tax loss in 2012, and gradually building up to profits of €2.4bn reported in its last set of full-year results.
The company’s latest trading update revealed yet another strong quarter with operating profit up 20.7% to €1,455m (before exceptional items), with all the group’s airlines performing well. Passenger unit revenue was up 2.2% at constant currency, boosted by improvements in the Spanish and Latin American markets.
The group’s commercial operations performed well despite underlying disruption from severe weather and terrorism, with the cargo business improving during the quarter due to stronger Asia Pacific demand compared to the previous year. Management is anticipating further improvements in the numbers for the calendar year just ended, with operating profits (before exceptional items) forecast to rise to €3bn.
International Consolidated Airlines has continued to shrug off external factors and improve its bottom line year-on-year, and this in turn has helped propel the share price recently to its highest level this century. Nevertheless, I think the shares still offer incredible value at just seven times forward earnings for 2018, with a growing dividend that supports a solid yield of almost 4%.
Another company that I believe is offering great value right now is leading UK housebuilder Redrow (LSE: RDW). Shares in the Flintshire-based group are up by an impressive 29% since my original recommendation in March 2017, but I believe shareholders should hold on for further gains.
In a statement released at its Annual General Meeting (AGM) the FTSE 250 group said that the market had remained buoyant despite a recent slowdown in sales due to ongoing political and economic uncertainty. Furthermore, management doesn’t expect the recent interest rate increase to have any adverse impact on the market as mortgage rates remain very competitive by historical standards.
The group’s total order book is currently at a record high of £1.2bn further underpinning my belief that the UK’s shortage of affordable housing will continue to support demand. With a forward price/earnings ratio of just eight, I believe Redrow’s shares are priced for further long-term growth.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Redrow. 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.