The FTSE 100 has a long-term average price-to-earnings (P/E) ratio of around 14 to 15. A few stocks in the index are currently valued a lot cheaper than that. And forecasts show their P/Es falling further in the next few years, with earnings expected to grow.
International Consolidated Airlines, P/E = 5.7
Even after a 12-month rise of 90%, the International Consolidated Airlines (LSE: IAG) share price still puts it on a forecast P/E of only 5.7. It’s one of those stocks at the mercy of external influences, and its recent price ride has been close to an inverse of the oil chart.
Even with the dip after recent conflict escalation, it’s already moving back again now a ceasefire between Israel and Iran might be in place.
With so much international conflict hampering air travel, this might seem like a sector to avoid. And high inflation — possibly rising again in the US — might take off what little shine is left.
But I’d say contarian investors should consider buying when things are gloomy and valuations are low. Forecasts, though subject to volatility for sure, would drop the P/E under five by 2027.
NatWest Group, P/E = 8.7
NatWest Group (LSE: NWG) is finally fully back in private hands, now the government has sold its share in what was Royal Bank of Scotland when it bailed it out. That helped push the share price up nearly 60% in the past 12 months.
We might be past the time when bank stocks really were super cheap. But at NatWest the forecast P/E is still only around 8.7. And by 2027 it could be just a bit above seven if the predicted 30% earnings rise between 2024 and then comes off.
As the price has risen, the dividend yield has fallen back. But a forecast 4.4% is still decent. And at Q1 time in May the bank spoke of the dividend rising in line with profits.
Falling interest rates could squeeze profits. And a failure to hit ambitious forecasts could knock the stock down. But I rate the UK banking sector as force to be reckoned with again.
M&G, P/E = 10
The M&G (LSE: MNG) share price spiked up recently, making for a 22% gain in 12 months. That knocked the forecast dividend yield, previously up over 10%, down to 7.9%.
That would still be a cracking yield. But forecast earnings would only just cover it, after several years of not coming close. As a savings and investment business, the future for M&G really does depend on economic recovery. And on investors shedding their fears and looking for actively-managed investments again.
The economic outlook is still far from clear, especially internationally. And I can see a fair chance of volatility in the M&G share price, especially if it looks like there’s any pressure on the dividend.
But should investors optimistic about the long-term future consider it? With forecasts putting the P/E down around 8.5 by 2027, I think so.
