Which FTSE 100 shares are the cheapest? The price-to-earnings (P/E) ratio is one common measure. All things being equal, a low P/E is best.
So today I’m looking at some FTSE 100 stocks on very low P/E values.
Would they make a good start to a new Stocks and Shares ISA? Here are five, with forecast P/Es for 2023:
| Company | Recent price | 12-month change | 5-year change | P/E ratio |
| Barclays | 152p | +7% | -28% | 5.0 |
| Centrica | 114p | +43% | -19% | 5.6 |
| Rio Tinto | 5,540p | -10% | +46% | 6.9 |
| Barratt Developments | 478p | -6.8% | -14% | 7.2 |
| Aviva | 425p | -25% | -36% | 7.8 |
The lead index tends to have an average P/E of around 14-15 over the long term. So even the most highly valued, Aviva, is still only about half that.
Banking
When a company faces a tough time, its shares should be on a lower P/E value. That just reflects the risk at the time. But to see Barclays on a P/E of only five almost hurts.
Lloyds Banking Group is in a similar state, on a P/E of only 5.6. With inflation, and the gloomy economy we seem to be set for in 2023, the risks to banks are high.
And yes, they should be valued in line with that. But I think these levels are just too cheap.
The same goes for insurance. Aviva has had a bad time for its own reasons, as the board has been working to reshape the firm.
And it also faces a lot of the same financial risk as the banks. But again, I think prices are too low.
Housebuilder
It’s no great shock to see a housebuilder on such a low valuation as Barratt Developments. And that’s after the shares climbed from their 52-week low in October.
The price back then would put the stock on a P/E of under five today.
We have a similar story again here. It’s all about short-term risk, of a property market slump in this case, weighed against our long-term housing shortage.
Housebuilder shares have already bounced back from their lows of last year. But I still see good value.
Cyclical stock
Rio Tinto is one of those cyclical stocks. It slashed its dividend in 2016, and I think the 2023 cash could come under pressure.
But China has opened up after Covid, and I expect global demand for metals and minerals to grow.
Finally, we have Centrica, the owner of British Gas. Centrica shares have been climbing since their Covid crash, but we’re still looking at a very low P/E.
Some of the rise will be down to high gas prices this year, so there’s risk from that effect tailing off in the future. But even with that, the stock still looks cheap to me.
Should I buy?
I already hold shares in banking, insurance and construction. So I’ll probably diversify more instead.
But I can’t help thinking I might do well to buy all five of these FTSE 100 shares and hold. I think I might come back a year from now and see how well I’d have done.
