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The economic instability has affected many FTSE 100 shares recently. The good news for investors like me is that there are now a number of top stocks in the UK's first index trading at a discount.
Two options I'm looking at Standard Chartered (LSE: STAN) and Barratt Developments (LSE: BDEV).
I would like to buy shares in both options the next time I have free cash, before they go up. Here is the reason.
Standard Chartered
Many financial services stocks have had a tough time of things recently due to global volatility including rampant inflation. Also, geopolitical issues didn't help either.
Asian-focused banks such as Standard Chartered have also been hit by economic problems in China, one of the world's leading economies. This is one of the biggest risks that I have to keep in mind as I buy stocks. Lower-than-expected growth in the country has hit many industries, and could hurt Standard Chartered's earnings and returns going forward.
However, on the other side of the coin, from a long-term perspective, there is a good investment case for me. First of all, stocks look cheap to me using two key metrics. The shares trade at a price-to-earnings ratio of just over one-sixth. From a price-to-book (P/B) ratio, a reading of 0.6 is bullish, as a reading below one would indicate this.
Regardless of valuation, the shares currently offer a dividend yield of close to 3%. While I know the returns are not guaranteed, the potential for income makes the investment case interesting.
Ultimately, Standard Chartered's growth is what excites me the most. With its well-established presence in Asia, and the possibility that its services are in high demand due to population growth and increasing personal wealth, there are good signs ahead. Standard Chartered's earnings and returns may increase. Also, I can see stocks going up, and they provide income growth.
Barratt Developments
Like financial services, the real estate market has also been under pressure due to high inflation, high interest rates, and the cost of living crisis. Because of these issues, completions, sales, and margins have come under pressure.
On the downside, stubborn inflation could be detrimental to earnings and returns for Barratt, and other builders, going forward. This is because the Bank of England will not cut interest rates, which may attract new buyers, and stimulate the market in general. I will keep an eye on this going forward.
From a bullish perspective, housing demand is outstripping UK supply. As the population grows rapidly, this demand will need to be filled, providing Barratt with the opportunity to increase wages, and returns, for years to come.
Next, Barratt's market position as the largest residential developer in the UK is hard to ignore. It has the presence, knowledge, and track record to achieve positive sentiment.
In the end, stocks look cheap to me. Using a different metric in this example, Barratt shares trade with a price-to-earnings growth (PEG) ratio of 0.7. Similar to the P/B ratio, the reading below one indicates the value of money. Also, a chunky dividend yield of around 6% is a sweet investment scenario. I also see this growing over time.
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