The flagship FTSE 100 index of leading shares has some companies in it that look like real bargains to me.
Here I want to discuss one that sells for pennies, has announced plans to slash its dividend, has sizeable debt and is shrinking its business.
That may not sound like everyone’s idea of a bargain!
So why do I think the share price in question looks much cheaper than I think it could be a few years down the line?
Fallen giant
The share in question is Vodafone (LSE: VOD). It is hard to remember now just how large and ambitious the company was a quarter of a century ago.
Not only has the FTSE 100 firm’s market capitalisation shrivelled since then (though at around £18bn, it is still substantial), but the company has been getting smaller too. Over the past few years, it has been selling off some of its operations in various European markets.
That has generated cash allowing Vodafone to reduce its debt. I see that as a positive move, even though the company is still carrying more debt than I like.
But a reduced business footprint could well mean revenues and profits shrink in coming years.
Why I like the share
As I see it, there are at least two very different ways to look at this situation.
One would be to see Vodafone as a formerly-high-flying business now in long-term managed decline. The dividend cut announced for next year is not the first.
The share price chart also looks woeful, with the FTSE 100 firm having seen its shares more than halve over the past five years.
But another approach would be to view Vodafone as being lumbered with a share price reflecting old investor fears, while its current business strategy is actually positioning it for a brighter future.
Selling units and seeing revenues fall is not necessarily a bad thing in my book. If it carries out its strategic shift successfully, Vodafone ought to be more focused, with a healthier balance sheet than before.
Customer demand remains high, the company has a massive customer base and it also can capture some interesting growth opportunities, such as rapidly expanding mobile money use in Africa.
Yes, the dividend is set to halve. But the current yield is 11.4%. Even at half that level, the yield would be well above today’s FTSE 100 average.
I’m holding
That explains why I have no plans to sell my Vodafone shares.
I think they are much cheaper than they ought to be and, hopefully, than where they might be a in a few years’ time.
With a big market, big brand and still a big dividend yield even after it is halved, I see the cup as half full.
The post This FTSE 100 share looks too cheap to ignore! appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
Vodafone shares: here’s how I saw the big dividend cut coming
£9,000 in savings? Here’s what I’d do to turn that into a £1,220 monthly passive income
3 UK stocks with high dividend yields
Back below 70p, is the Vodafone share price set to slide?
The Vodafone share price is getting cheaper. I’d still avoid it like the plague!
C Ruane has positions in Vodafone Group Public. The Motley Fool UK has recommended Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
