Fresnillo plc isn't the only Footsie stock I'd buy today

With the FTSE 100 making new all-time highs this year, finding blue-chips trading at really wonderful prices is becoming harder. However, as legendary investor Warren Buffett has said: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

I'm seeing a number of wonderful companies trading at what I believe are fair prices. The world's leading silver producer Fresnillo(LSE: FRES) is one. Global tobacco giant British American Tobacco(LSE: BATS) is another.

Rising production

Fresnillo today released a production update for the final quarter of 2017. It reported a 20.3% increase in silver production versus Q4 2016. This strong performance took full-year production to 58.7m ounces, which was 16.6% up on 2016. Gold production for the year of 911,100 ounces was slightly down on 2016 but exceeded guidance.

A major contributor to performance was the first complete year of its San Julián (phase I) mine operating at full capacity, as well as the start-up of operations at San Julián (phase II). The mine will contribute to a further increase in overall production in 2018. Management has guided on silver production in a range of 67m to 70m ounces, while gold is expected to be between 870,000 and 900,000 ounces.

Positioned to prosper

The production numbers feed through to City analysts' forecasts of earnings per share (EPS) of 50p for 2017, rising 10% to 55p for 2018. At a share price of 1,360p (a couple of percent up on the day), we have a trailing price-to-earnings (P/E) ratio of 27.2, falling to 24.7 for the current year. Historically, such multiples are by no means extortionate for big miners in the precious metals subsector. I view them as fair for the world's leading silver producer, particularly as the company has a strong balance sheet to boot.

Fresnillo's core operations are in Mexico, a country with a long mining history, skilled workforce and substantial geological resources. The company is well placed to prosper, having significant development projects and exploration prospects in addition to its seven operating mines. As such, I rate the stock a 'buy'.

Plenty in the armoury

After a number of rounds of consolidation, a few big global players, including British American Tobacco, dominate the mature tobacco industry. Health education and regulation have seen tobacco volumes falling in developed countries but the industry incumbents have plenty in their armoury to combat this.

Pricing power, measures to improve operating efficiency, investment in next generation products, growth of consumption in developing countries and large obstacles to would-be new entrants are all in the big plus column. For these reasons, I believe the world's tobacco giants can continue to deliver for investors for many years to come.

A colossus that just got bigger

FTSE 100 colossus British American Tobacco became even bigger last year, with the acquisition of the remaining 57.8% of Reynolds American it didn't already own. This has made it a stronger, global tobacco and next generation products company than ever.

Its shares are currently trading a little above 5,000p and with it forecast to report EPS of 280p for 2017, the P/E is 17.9. This falls to 15.9 for the current year on expectations of 13% EPS growth to 316p, while a forecast 200p dividend adds a nice prospective yield of 4%. I view this as another wonderful company at a fair price and rate it a 'buy'.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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