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As honorable as 2024 has been FTSE 100 so far, some of its members are having a very difficult time. Today, I'm going to look at two value stocks that are currently trading on 52-week highs and ask if they're too cheap to ignore.
A decrease in profits
It may have benefited a lot from rising gas and electricity prices over the last few years but I think it's fair to say that. Centrica's (LSE: CNA) purple patch is over. Shares are down 13% in 2024 alone as market conditions have, to quote executives, “normal”. Adjusted net operating profit was £1.04bn in the first six months of the year. It was double that in the same period of 2023.
It is important to put this fall in perspective. Although it is painful for new owners, those who had the courage to buy at the beginning of the epidemic will still look for a very good return. One can also argue that there are many bad things that are now being looked into.
Cheap FTSE 100 stock
The £6.3bn cap trades at a price-to-earnings (P/E) ratio of just six. At face value, this looks pretty cheap for both the utility industry and the wider UK market.
Centrica's finances also look healthier than ever. A dollop of cash on the balance sheet should allow it to continue to push its business forward in renewable energy sources. And with gas prices set to rise next month, perhaps the next set of numbers will be warmly received.
However, this is an incredibly competitive space where customer loyalty is gone. On a lighter note, I recently moved to another supplier from Centrica's British Gas and saved a package while we did it.
Throw in low margins and a history of inconsistency when it comes to profits and I'm in no rush to buy here.
Without being loved
Another FTSE 100 stock that recently reset a 52-week low is the mining behemoth. Rio Tinto (LSE: RIO). Its shares have been falling in value through 2024 (down 22% as I write).
There are probably several interconnected reasons for this. Chief among them is the slowdown in economic development in China – one of the largest consumers of metals in the world. Country conflicts and high interest rates have not helped matters.
A better buy?
Like its top-tier peers, the company's stock now trades at a low P/E of just eight. Unlike Centrica, however, that is a very average rating in its sector. There is also the possibility that shares will continue to fall in the event of unfavorable production updates, in addition to the aforementioned concerns.
All that said, I'm not buying but I would very much like to buy Rio Tinto if I had the money to spare for two main reasons.
First, its size and metal interests such as copper and lithium methods will likely play an important role in the transition to green energy. This change will clearly take decades. But that brings me to my second reason.
paid a dividend of 7.2 %. Although no income stream can be guaranteed, this doubles what I would get from a standard FTSE 100 tracker and can lead to a good result if reinvested and allowed to compound.
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