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When I’m looking for cheap shares to buy on the Footise, there’s one fairly simple measure I often start with.
I look at all the forecast price-to-earnings (P/E) ratios, for the current and next financial years. Leaving out any that don’t have a positive P/E, I check out the lowest ones.
The following table shows five cheap FTSE 100 stocks by that measure, all of which attract my attention. It shows the forecast P/E for the current year, plus next year. And I’ve thrown in dividend yields too.
| Stock | Recent share price |
P/E cur | P/E next | Div cur | Div next |
| International Consolidated Airlines |
190p | 4.9 | 4.5 | 2.7% | 3.4% |
| Centrica | 117p | 6.1 | 8.2 | 3.6% | 4.3% |
| Beazley | 755p | 6.6 | 6.6 | 1.9% | 2.1% |
| NatWest Group (LSE: NWG) |
336p | 7.2 | 7.0 | 5.4% | 5.7% |
| BP (LSE: BP.) | 413p | 9.5 | 6.8 | 5.7% | 6.2% |
Super cheap
Airlines are a bit hammered right now by the Middle East conflict and the effect that’s had on the oil price.
But higher oil prices shouldn’t do BP any harm, and that’s one of the two that attract me the most of these. Its forward P/E of 9.5 isn’t one of the lowest. But earnings forecasts that would drop it to 6.8 next year get it on to the list.
Despite Brent Crude trading at $78 a barrel at the time of writing, the BP share price has still fallen 12% so far in 2024. And it’s still lower than it was before the pandemic.
In its last quarterly update in July, CFO Kate Thomson said:
Our decision to increase our dividend by 10%, and extend our buyback programme commitment to 4Q 2024, reflects the confidence we have in our performance and outlook for cash generation.
The big unknown is how long BP will be able to pump oil and make profit from it. And we will, surely, wean ourselves of fossils fuels some day.
But a cash-cow stock like BP, paying big dividends while on low P/E ratios like these? It all makes me seriously consider buying.
Best value bank?
That low valuation for NatWest Group makes me wonder if it might be the best FTSE 100 bank for me to add to my Stocks and Shares ISA in 2024.
Those low forecast P/E multiples are about half the long-term Footsie average. And they come even after the share price has had a cracking 2024, up 53% year-to-date.
My main fear is what impact falling interest rates could have on Barclays’ lending margins. And it’s sounding like we might have bigger cuts sooner.
As well as the dividends, NatWest has had the cash for a £1.2bn share buyback, which it completed in May. And the acquisition of £2.5bn of mortgages from the troubled Metro Bank looks like a canny move.
For the full year, the bank told us at interim time it expects a return on tangible equity above 14%, which I rate as very attractive. But the board did point out that year will depend on our uncertain economic outlook.
