While the State Pension is likely to provide a welcome income stream for many retirees, it is unlikely to deliver financial freedom for most people. It amounts to just £8,767 per annum, which is around a third of the average salary in the UK.
As such, building a nest egg before you retire to generate a passive income in older age is crucial. With the FTSE 100 currently offering good value for money due to many of its members trading on low ratings, now could be the right time to start investing for your retirement.
With that in mind, here are two large-cap shares that seem to be undervalued at the present time.
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Sainsbury’s
The recent results from Sainsbury’s (LSE: SBRY) highlighted the progress it is making in implementing its strategy. For example, it has successfully launched a range of new value-brand products as it seeks to become more competitive on price versus rivals. It has also seen the benefits of its focus on improving customer service levels, with customer satisfaction scores increasing by three percentage points year-on-year.
Looking ahead, the company plans to upgrade a range of its stores. This could improve the shopping experience for its customers and help to build a greater sense of loyalty. It is also investing in digital growth opportunities – especially in its Argos concessions.
Although Sainsbury’s is forecast to post earnings growth of just 2% in each of the next two financial years, its valuation suggests that it offers a wide margin of safety. It trades on a price-to-earnings (P/E) ratio of just 11.2, which could mean that there is scope for a rising share price as it implements its current strategy.
TUI
The prospects for travel and leisure business TUI (LSE: TUI) continue to be relatively uncertain. Its recent results highlight the difficulties that the grounding of Boeing’s 737 MAX aircraft have caused for the company, with it anticipating a €130m impact in the current financial year. Should the aircraft fail to return to service by the end of April 2020, TUI is assuming a further cost of between €220m and €270m.
As such, the company’s financial outlook continues to be subject to a high degree of changeability depending on outside factors. However, its strategy of investing in digital opportunities and the prospect of improving demand for its offering are expected to produce a double-digit rate of earnings growth in the current year and next year.
With the stock currently trading on a price-to-earnings growth (PEG) ratio of just 0.9, it seems to offer good value for money at the present time. Although it faces significant risks in the near term, its wide margin of safety could mean that its risk/reward ratio is relatively attractive for long-term investors. As such, now could be the right time to buy a slice of the business.
