With the FTSE 100 still hovering around all-time highs, it’s getting hard to find any shares out there that trade at an attractive valuation. However, I believe I have found five gems: Afren (LSE: AFR), Sainsbury (LSE: SBRY), Petrofac (LSE: PFC), BP (LSE: BP) and Tate & Lyle (LSE: TATE), all of which currently look undervalued.
Trouble in the East
Afren has been hit with a wall of bad news this year. With battles raging near some of the company’s key oil prospects within Iraq, it was revealed that Afren’s CEO had been suspended as he had made some unauthorized payments.
Nevertheless, despite worries the company’s underlying business appears to be functioning well, although oil production is expected to fall slightly this year. The City expects the company to report earnings per share of 12.2p this year, putting the company on a forward P/E of 8.8. Current expectations are for earnings to grow 8% during 2015, which puts the company on a 2015 P/E of 8.1.
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Rise of the discounters
Sainsbury’s has been a victim of general negativity towards the UK retail sector this year. Indeed, while the company’s peers have grappled with falling sales, Sainsbury’s sales have remained robust, which makes the company a compelling investment at current levels.
Right now Sainsbury’s is trading at an undemanding forward P/E of 10.3 and the company supports a current dividend yield of 5.3%. That said, City analysts don’t expect the company’s earnings to do much over the next few years, a slight fall of around 10% is expected. Still, as a income investment Sainsbury’s is a great pick.
Cheaper than peers
Petrofac, as one of the world’s leading oil service companies is in demand. Within its last set of results the company reported an order backlog of more than $20bn, locking in several years of revenue. Further, the company has one of the best reputations for project delivery in the industry. Profit margins are also some of the best around.
That said, the company has warned on profits several times during the past year, as some projects took longer than expected to complete. However, an undemanding valuation of only ten times historic earnings makes Petrofac a cheap bet. The company’s shares support a dividend yield of 3.5%.
Sweet treat
Tate & Lyle is one of the world’s leading sugar and sweetener businesses. The company has a solid grip on the market thanks to its SPLENDA Sucralose brand.
Tate has fallen out of favour with investors recently due to the fact that first-quarter profits came in below expectations. Management blamed these lower-than-expected results on a strong pound and the unexpected shutdown of its SPLENDA Sucralose facility in Singapore, as well as customer order patterns.
For long-term investors this could be a great chance to buy in. At present levels the company is trading at a forward P/E of 13.8, which is expected to fall to 13 during 2016. This is not a demanding valuation for a world leading sweetener company. Oh and I can’t forget Tate’s attractive 4.1% dividend yield, covered twice by earnings per share.
Russian troubles
BP has been sold off due to concerns about the company’s exposure to Russia. In particular, the company owns nearly a quarter of Russian oil giant Rosneft, there have been concerns that the Russian state could nationalize this stake.
Still, like Afren, BP’s underlying business remains intact and the company looks attractively priced at current levels. Indeed, BP’s shares currently trade at a forward P/E of 10.1, falling to 9.4 during 2015. Additionally, the shares support an attractive 4.6% dividend yield. This payout is set to rise to 5.2% within the next two years.
For long-term investors, BP’s short-term troubles are not overly concerning. What’s more, a year of lacklustre share price performance gives investors a chance to reinvest their dividends at an attractive price, which should turbo-charge returns when BP springs back into life.
