Two value stocks I’ve decided I’ll be buying as soon as I have some investable funds are Centrica (LSE: CNA) and Beazley (LSE: BEZ).
Here’s why!
Centrica
The British Gas owner has experienced mixed fortunes in recent times, if you ask me. Higher gas prices have boosted the coffers. However, at the same time, the volatility behind this hasn’t helped the share price.
Over a 12-month period, the shares are up 12% from 124p at this time last year, to current levels of 139p.
One thing I’m sure of is the fact the shares do look dirt-cheap, and Centrica looks like a no-brainer buy for me and my holdings.
At present, the shares trade on a rock-bottom price-to-earnings ratio of two. Yes, you read that correctly. Now of course I do understand cheap doesn’t necessarily represent good value. However, there’s too much to like about the business, in my view at least.
Firstly, from an investment view, a dividend yield of just under 3% is decent, and would help me boost my passive income stream. However, I do understand that dividends are never guaranteed.
Next, as one of the biggest suppliers of gas and electricity in the UK, to over 10m customers, it’s in a great position. This dominant market position, coupled with extensive experience and performance track record, is enviable. However, I do understand that past performance is never a guarantee of the future.
Despite my bullish view, I must note risks that could dent future earnings and returns. Firstly, the transition towards greener, cleaner energy could take a big bite out of what currently looks like a healthy balance sheet.
The other issue is its lack of pricing power, as it’s at the mercy of wholesale gas prices. Geopolitical issues – like those seen recently – and the cyclical nature of this is something I’ll keep an eye on.
Beazley
Lloyd’s of London insurance firm Beazley is a bit of an undercover gem, if you ask me. For the uninitiated, it deals in speciality insurance risk and reinsurance. Hardly riveting stuff. Lucky for me, I’m looking for my investments to grow, not excite me based on the nature of the business.
The shares have been on a decent run in the past 12 months. They’re up 12% in this period, from 588p to current levels of 657p.
From a valuation view, the shares trade on a price-to-earnings ratio of just 6.7, which is attractive. Plus, a dividend yield of 2% and continued share buybacks sweeten the investment case.
Recent performance updates, including a Q1 update, have given the business and shares great momentum. This has led to several analysts giving the stock ‘buy’ ratings, including RBC.
However, from a bearish view, one of the biggest risks for me is the potential for a worsening geopolitical landscape, as well as an external disaster type event – take Covid for example – occurring. These issues could dent the firm’s earnings, and potential returns, too.
This post was originally published on Motley Fool
