2 ASX large-cap stocks that look cheap right now

Valuations are still compressed for these companies.

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Today, I will be looking at two ASX large-cap stocks that are catching investors' eye with their recent performance.

ANZ Group Holdings Ltd (ASX: ANZ) and Qantas Airways Ltd (ASX: QAN) have both seen significant gains this year and are on expert's radars.

And with the S&P/ASX 200 Index (ASX: XJO) advancing just a little more than 2% this year to date, these could be attractive options for anyone looking to add solid performers to their portfolio.

Here's why these two ASX large caps could be cheap right now.

Is ANZ a cheap ASX large-cap stock?

ANZ shares are currently trading at $29.18 just after the open on Tuesday. This marks a nearly 13% increase this year year-to-date. According to Goldman Sachs and UBS, ANZ shares could continue to deliver impressive returns.

UBS has set a price target of $30 for ANZ shares, implying an around 3% upside from the current level. According to my colleague Tristan, the broker reckons ANZ will generate earnings per share (EPS) of $2.29 in FY24, with a growth of 5.7% to $2.42 in FY25.

This growth could stem from ANZ's recently announced $2 billion share buyback, which reduces the number of shares on issue and enhances EPS.

Meanwhile, Goldman Sachs analysts rate ANZ a buy thanks to its "large pipeline available which can be used to offset cost inflation".

"We continue to see upside for [ANZ] Group returns due to accretive mix shifts in the Institutional business towards higher ROE Payments and Cash Management business", the broker said, adding ANZ trades at a discount to the sector, excluding dividends.

ANZ has outperformed the ASX 200 Index by over 18% in the last 12 months, with a 26% rise compared to the index's 9% gain. It currently trades at a price-to-earnings ratio (P/E) of 12.8.

This tells me investors are paying less for $1 of the banks's earnings than they are for the iShares Core S&P/ASX 200 ETF (ASX: IOZ), the index fund tracking the benchmark, with a P/E of 18 times.

The earnings yield is 7.7% at this P/E. When combined with the ASX large-cap stock's trailing dividend yield of 6.1%, this represents potential value in my opinion.

Are Qantas shares undervalued?

The Qantas share price is up 15% this year and currently trades at $6.20 apiece. Despite this rise, many analysts believe Qantas shares are still undervalued compared to its peers.

Goldman Sachs recently added Qantas to its June Asia-Pacific conviction list. The broker says the airline is primed to grow beyond its pre-pandemic ranges. It expects Qantas to produce EPS of 85 cents in FY24 and 96 cents in FY25, which is significantly higher than the 57 cents per share reported in 2019.

Qantas currently trades at a P/E ratio of 6.7, which is well below the average P/E of 9.1 for its regional and US competitors, according to Goldman.

If Qantas hits its projected EPS of 96 cents in FY25 and its P/E converges to the peer average, this implies a potential share price of $8.64, as I've discussed previously.

Goldman Sachs has set a price target of $8.05 for Qantas shares, implying a potential upside of 29% from the current price.

This valuation makes Qantas shares look cheap in my view. It offers potential upside for investors with a substantial margin of safety.

But it's not just the potential disconnect in valuation. Several factors could drive Qantas shares higher. Goldman Sachs highlights that the airline's cost-out program, operational performance improvements and potential positive trading updates could also boost investor confidence.

It also expects Qantas to potentially return $1.2 billion to shareholders as dividends over FY 2025-2027.

Conclusion

ANZ and Qantas might present compelling opportunities for investors seeking ASX large-cap stocks with strong growth potential.

With their solid performance and attractive valuations, experts say these stocks could be worth considering for your portfolio.

As always, conduct your own due diligence and remember to consider your personal financial circumstances.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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