5 cheap FTSE 100 stocks to watch

​​​The FTSE 100 has gained 6.5% year-to-date (YTD), but momentum has slowed since April. Despite this, several index constituents continue to offer attractive valuations based on their price-to-earnings (P/E) ratios. Let's examine five FTSE 100 stocks that might be worth considering for your investment portfolio.

International Consolidated Airlines Group (IAG) – P/E ratio: 4.36

​The International Consolidated Airlines Group (IAG) share price recently experienced a 10% drop, primarily due to escalating tensions between Iran and Israel. This geopolitical conflict caused a spike in oil prices, which negatively impacted IAG's stock as fuel costs represent a significant expense for airlines.

​Despite this setback, IAG remains an attractive investment opportunity for several reasons:

1. Strong financial position
2. ​Diversified business model across multiple airlines and regions
3. ​Relatively low P/E ratio compared to industry averages
4. ​Ongoing air travel recovery and cost-reduction initiatives

​However, potential investors should be aware of risks such as industry volatility, potential labour disputes, and competition from low-cost carriers. These factors could impact IAG's future performance and share price.

Centrica – P/E ratio: 5.5

​Centrica stock has declined over 8% in 2024, but recent analyst upgrades suggest a potential turnaround. Jefferies recently upgraded Centrica to Buy from Hold, maintaining a 150p price target. The upgrade was based on:

• Consistent management performance in downstream retail and optimisation segments
• ​Increased visibility on future investments
• ​Attractive risk-reward profile following the recent share price decline

​This bullish stance aligns with other analysts, including Berenberg, who upgraded Centrica to Buy in July, citing its strong balance sheet and optionality. Overall, 13 out of 15 analysts covering Centrica rate it a Buy, with an average price target of 174.7p, suggesting a potential 35% upside from current levels.

NatWest – P/E ratio: 7.3

​NatWest Group's share price has fallen by nearly 30% since the start of the year, resulting in a P/E ratio of 7.3 and a dividend yield over 8%. This significant discount reflects investor pessimism due to two major issues:

1. Industry-wide challenges from rising interest rates compressing margins and increasing loan losses

2. NatWest-specific problems stemming from the Nigel Farage account closure controversy

Despite these concerns, NatWest continues to return cash to shareholders through an 8% dividend yield and share buybacks, which have reduced the share count by 10%. The current share price suggests the market expects NatWest to merely stay afloat, but stable interest rates could alleviate some pressure on margins.

HSBC – P/E ratio: 7.44

​HSBC's stock has shown volatility in 2024, dropping after its 2023 results but recovering to a 5.1% YTD gain. The bank offers several attractive features for potential investors:

• ​7.2% dividend yield, making it the fifth-highest payer in the FTSE 100
• 90.6% increase in payout last year
• Special one-off dividend coming from the sale of its Canadian unit
• Undervalued P/E ratio of 7.4, below the FTSE 100 average
• Price-to-book ratio of 0.8

​While exposure to the slowing Chinese economy poses some risk, HSBC's strong presence in Asia, with its growing middle class, presents long-term growth potential. The combination of high dividend yield, potential for share price growth, and strategic positioning in emerging markets makes HSBC an appealing investment option.

Factors to consider when investing in low P/E ratio stocks

​When evaluating stocks with low P/E ratios, it's essential to consider several factors beyond just the valuation metric:

1. Company fundamentals: Analyse the company's financial health, revenue growth, and profitability trends.

2. Industry outlook: Assess the overall industry landscape and potential challenges or opportunities.

3. Competitive positioning: Evaluate the company's market share and competitive advantages.

4. Management quality: Consider the track record and strategic vision of the company's leadership team.

It's important to note that a low PE ratio doesn't necessarily indicate a good investment opportunity. Sometimes, stocks trade at low valuations due to fundamental issues or industry-wide challenges.

How to invest in FTSE 100 stocks with IG

​If you're interested in investing in these FTSE 100 stocks or exploring other opportunities in the UK market, here's how you can get started with IG:

1. ​Research the FTSE 100 stocks you're interested in, considering factors such as P/E ratios, dividend yields, and growth potential.

2. Open a share dealing account with IG to access a wide range of UK and international stocks.

3. Use IG's platform or mobile app to search for the specific FTSE 100 stocks you want to invest in.

4. Decide how many shares you want to buy or the amount of money you'd like to invest.

5. Place your trade and monitor your investment performance over time.

​Remember to diversify your portfolio and consider your risk tolerance when investing in individual stocks. Always conduct thorough research and consider seeking professional financial advice before making investment decisions.

​By carefully evaluating these low P/E ratio FTSE 100 stocks and understanding the broader market context, investors can potentially identify attractive opportunities in the UK stock market. However, it's crucial to maintain a balanced approach and consider both the potential rewards and risks associated with each investment.