Finding bargains within the FTSE 100 may seem unlikely when the index is close to its record high. However, not all shares have recorded gains as high as the wider index in recent months. Even those that have could still move higher, given impressive forecasts. With that in mind, here are two stocks that appear to offer strong growth at bargain prices.
A solid value play
Whitbread‘s (LSE: WTB) business model could prove to be one of the most defensive around during the course of 2017. It could benefit from problems caused by Brexit, since its Premier Inn hotel chain enjoyed bumper growth during the last recession. That occurred because a tightening of consumer spending in real terms caused many people to trade down to budget options. And since Premier Inn is perhaps the best-known budget hotel chain in the UK and spends heavily on marketing, it could see demand rising for its rooms.
Similarly, Costa proved to be a defensive business in the credit crunch. Although weaker sterling and the living wage could cause the company’s costs to rise, consumer demand for coffee is unlikely to change given the economic uncertainty faced by the UK. While it’s perhaps not as resilient to changes in the economic outlook as tobacco or alcoholic drinks, coffee is now considered a staple item by many consumers and this should allow Costa’s sales to continue rising.
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With Whitbread trading on a price-to-earnings growth (PEG) ratio of 1.6, it appears to offer excellent value for money. There may be cheaper stocks around, but its defensive business model, and the potential for it to benefit from Brexit relative to peers, could make it a sound buy at the present time.
An improving business
While Whitbread may be a relatively defensive option, Rolls-Royce (LSE: RR) offers significant growth prospects. It’s forecast to record a rise in its bottom line of 53% in the current year, which puts it on a PEG ratio of just 0.4. Beyond this year, there’s scope for further growth as a result of the company’s turnaround plan. This will see it reducing costs and become increasingly efficient, while at the same time introducing new products that could catalyse its financial performance.
Allied to this is the likelihood of higher defence spending over the medium term. The era of austerity may now be over following Donald Trump’s election. Similarly, the UK government and countries across Europe may wish to stimulate their economies to a greater extent in future in order to stave off downward pressures on business confidence.
Certainly, Rolls-Royce is a relatively risky buy. It has endured a difficult period and downgrades to its forecasts can’t be ruled out. However, with such a low valuation it appears to offer a wide margin of safety and significant share price appreciation potential.
