It’s a great time to hunt for cheap FTSE shares. The stock market has been weak for some time. Many company valuations have been driven down to levels that look unsustainable.
Nothing’s certain in the stock market. But if the businesses behind inexpensive shares keep performing well, valuations will likely rise again. That process could involve gains for investors as share prices lift in a new bull market.
One approach worth exploring is to copy the style of billionaire investor Warren Buffett and others. That means looking for value in the stock market before the general economic news improves.
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Steady trading
For example, on 31 October, financial market infrastructure company TP ICAP (LSE: TCAP) reported trading in line with expectations. The business delivered a stable performance during the first nine months of 2023. But the stock market is assigning the FTSE 250 company what looks like a miserly valuation.
Normalised earnings rebounded by around 40% in 2022 after a weaker period. And City analysts expect further gains of about 8% and 13% in 2023 and 2024.
However, with the share price in the ballpark of 161p, the forward-looking earnings multiple is close to just 5.5 for next year. And the anticipated dividend yield is almost 9%.
The firm is “the world’s largest” inter-dealer, energy and commodities broker. It’s also a leading provider of over-the-counter (OTC) pricing data.
One risk for investors is that it’s hard to gain visibility into the firm’s markets without being inside the company. The business did suffer several years of earnings declines recently, suggesting volatility in operations.
But in August, the outlook statement was positive. The company has been buying back its shares and paying down debt, suggesting that cash flow remains strong.
On balance, the level of dividend yield and the low valuation look attractive when set against positive analyst expectations of earnings growth ahead. So the stock is worthy of further research and consideration now.
Recovery and growth
Another cheap-looking share is Jet2 (LSE: JET2), the leisure travel company offering package holidays and airline flights.
The FTSE AIM business has recovered from the setbacks caused by Covid lockdowns and launched into what looks like a period of growth.
City analysts expect robust earnings for 2023 after a loss the prior year. They’ve pencilled in a further increase for 2024 of around 33%.
With the share price near 1,023p, the forward-looking earnings multiple is just above six for the next trading year to March 2025. Meanwhile, a reinstated dividend looks set to yield about 1.3%.
Recent updates from the company have been optimistic in tone. Indeed, the leisure industry has rebounded strongly since the pandemic.
However, there is some risk here for investors because of the inherent cyclicality of the industry. Jet2 demonstrated its vulnerability to general economic shocks during the Covid lockdowns.
Nevertheless, the business is trading well and the valuation looks undemanding. Therefore, the stock is worth investors’ further research time now. It could make a decent hold for November and beyond.
