A cornerstone of my investment strategy is to buy FTSE 100 shares with the aim of holding them for decades. It’s far from thrilling. But it’s effective.
Scouring the UK-leading index right now, I see a great number of undervalued stocks. There are plenty of buying opportunities out there that I think investors should consider taking advantage of.
In fact, there are so many that at times it can feel difficult to select just a couple. That said, if I had the cash today, here are two Footsie shares I’d buy hand over fist.
NatWest
I’ll start with NatWest (LSE: NWG). The bank’s been on an absolute tear recently. Year to date, the stock’s up 52.1%. In the last 12 months, it’s climbed 42.1%.
By comparison, the FTSE 100’s up 6.5% and 7.9% across the same timeframes. But even after its impressive rise, I still see value in NatWest.
That’s because the stock looks dirt cheap. It currently trades on a price-to-earnings (P/E) ratio of just 7.1. That’s considerably below the FTSE 100 average of 11. Looking ahead, its forward P/E’s 7.8. While that’s slightly higher, it still represents great value, in my view.
I’m also a fan of NatWest for its dividend yield, which currently sits at 5.2%. I’m wary that dividends are never guaranteed. But the NatWest payout’s covered nearly three times by earnings. What’s more, its dividend rose by 26% last year, to 17p per share.
With the bank’s momentum has been gaining in recent times, it’s easy to see why its share price has been soaring. Profits for the second quarter rose by over 25% to £1.3bn. Investors were also excited to learn that the firm had acquired a £2.5bn portfolio of prime UK residential mortgages from competitor Metro Bank.
The biggest risk to NatWest is interest rates. Not only do they fuel economic uncertainty, but falling rates also mean smaller margins. That will shrink NatWest’s profits.
But with its dirt cheap valuation, I’m a fan of the stock.
Diageo
The Diageo (LSE: DGE) performance has been a stark contrast to NatWest. Year to date, the stock’s down 11.3%. Over the last 12 months, the alcoholic beverage giant’s lost 19.4% of its value.
But I’m not writing it off just yet. And trading on a P/E of 19.3, I see value in its shares. Yes, that’s above the FTSE 100 average. That said, it’s below its long-term historical average of over 22.
The stock may continue to suffer in the months to come. The business issued a profit warning earlier this year, which sent its share price spiralling. And as the cost-of-living crisis continues, there’s the risk that consumers may switch to cheaper alternatives, given Diageo focuses on premium brands.
But in the years and decades to come, I think Diageo could excel. Rate cuts will boost spending and with premium names under its umbrella, I’m backing the firm over the long run.
There’s also a 3.1% yield on offer. That’s below the Footsie average. However, Diageo’s a strong track record of constantly rewarding shareholders.
This post was originally published on Motley Fool
