Finding FTSE shares that are undervalued can be easier than it sounds. OK, just because a stock has fallen, it doesn’t necessarily mean it’s good value. However, by using different financial ratios and adding in my own research, it’s possible to find companies that could rebound in the years to come. Here are two I’ve spotted.
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Gone with the wind
The first is the Renewable Infrastructure Group (LSE:TRIG). The stock is down 12% over the past year, and is close to 52-week lows. A key driver in this move has been lower expected electricity prices. This directly hit future revenues from wind and solar assets.
This matters because the company’s valuation depends heavily on projected long-term cash flows from power generation. So if the current assumption is lower prices, it could result in lower profits, which investors need to readjust for.
Despite this, I think the reaction has been too much. The share price should closely mirror the net asset value (NAV) of all the infrastructure assets it owns. However, the stock is currently at a 31% discount to the latest reported NAV. This could indicate it’s undervalued.
Further, it looks like a bargain from a dividend perspective. The current dividend yield is 11.67%, making it one of the highest in the FTSE 250. The dividend per share has been increasing for several years, and I don’t see it as being under any immediate threat of being cut.
Of course, the risk of lower electricity prices is an ongoing concern. However, I struggle to see it remaining like this for a long time, given the increasing demand from EVs and AI data centres.
Further room to run
A second option is Hiscox (LSE:HSX). The share price has rallied almost 40% in the past year, but I still think it looks good value! For a start, the price-to-earnings ratio is 10.6. This is below the FTSE 100 average ratio of 18, meaning the share price could still have a way to go before it looks fairly valued using this metric.
The company has good momentum with it. A core driver has been consistent underwriting profits, shown by combined ratios comfortably below 100% (a key insurance profitability metric). This ratio shows discipline in underwriting, which should give investors confifdence the team knows what they are doing.
It’s also benefitting from growth in most market segments. This ranges from retail right through to reinsurance. The outlook appears strong, with projected growth in premiums. As a result, I just don’t think the share price has kept pace with the business over the past year, making it undervalued.
There’s always the risk of catastrophic loss from natural disasters. This is an inherent risk with insurance companies, but it can’t be avoided when investing in the sector.
Overall, I think both shares look like bargains and should be considered by anyone looking for portfolio additions right now.
