With the return of global tensions and volatility following the latest salvo in the US–China trade war, it’s finally looking up for value investors, as growth stocks splutter.
This week, we’re looking at two large-cap ASX stocks – ones that I think are looking cheap, especially when compared to the rest of the stock market. Although these shares are not what you would call ‘hidden gems’, sometimes the best value hides in plain sight.
Australia and New Zealand Banking Group (ASX: ANZ)
Otherwise known to most folks as ANZ bank. In my opinion, ANZ is one of the better ASX banking plays in the current environment. Firstly, it has the lowest current price-to-earnings (P/E) ratio amongst the ‘Big Four’ banks at 11.78. Considering the average P/E ratio of the S&P/ASX 200 (INDEXASX: XJO) index is sitting at 18.3 (as of August 1), I think ANZ is looking cheap at the current time.
ANZ also holds one of the better balance sheets out of the ‘Big Four’, with business loans and credit almost equalling retail credit (mortgages, personal loans and credit cards). Unlike the mortgage-heavy banks like Westpac Banking Corp (ASX: WBC), I feel ANZ is better placed to weather any adversity in our property markets. ANZ shares also pay a hefty dividend – a 5.81% yield on current prices, which adds some bang to your buck as well.
Rio Tinto Ltd (ASX: RIO)
I’ve thrown Rio in here as the ASX iron miners spent July retreating from the recent 7-year highs they were touching in June. Rio shares have now fallen 11% in a month and are sitting at a three-month low. More downside could follow depending on whether the iron ore price finds a floor in the near future.
Still, I think there is increased value in Rio shares after this slump – the company is sitting on a huge pile of cash and has recently promised to dole out some of this cash as a special dividend. This may only be the start of a possible dividend bonanza that could play out over the next year or two and I think Rio remains a solid buy for income, especially if the share price keeps falling.
Both of these ASX giants represent possible value opportunities at this time and would be great shares to keep an eye on this week. I like the ANZ share price better right now and I think Rio has more downside risk at the present time. But both are quality companies that will (in my view) continue to reward shareholders for many years.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.