BT Group and International Consolidated Airlines could be the FTSE 100's biggest bargains

If you fancy shopping for bargain stocks on the FTSE 100 there are quite a few going cheap at the moment. But these two look particularly tempting.

Bargain buys

Troubled telecoms giant BT Group (LSE: BT-A) and high-flying air carrier International Consolidated Airlines Group(LSE: IAG) both trade at just 7.7 times earnings, roughly half the FTSE 100's long-term average of 15 times earnings. They are the equal second cheapest stocks on the index. Only this bargain growth monster is cheaper, trading at 6.5 times earnings.

Yet BT and IAG have had a very different trajectory. BT's share price is down 28% over the past year, while IAG is up 18%. Measured over five years, BT is down 30% while IAG is up a dizzying 175%. One is a contrarian turnaround, the other a momentum play. Yet both are equally cheap.

Poor sport

BT's recent troubles have been well documented. Investors are worried about its net debt, which now totals £9.6bn (and still rising). Add its £11.3bn pension deficit and these two liabilities are within a whisker of BT's market-cap of £21.2bn, as my Foolish colleague Alan Oscroft points out here.

Investors are also concerned about its sporting rights strategy, with CEO Gavin Patterson sacked for spending billions competing with Sky. I will be interested to see whether Amazon's lurch for 20 Premiership matches from 2019, and Patterson's departure, herald a change of strategy here.

Here comes the sun

Valuation aside, one number really stands out when you look at BT: the stock now yields a whopping 7.21%. This costs the group £1.5bn a year, hard to justify given its debt, and makes the dividend an easy target for Patterson's replacement. So don't rely on the current payout as it may not be with us for long. A cut may also inflict further damage on the share price, unless already factored in. However, it might be worth buying a stake in BT ahead of the new CEO's honeymoon period.

British Airways and Iberia owner International Consolidated Airlines has been in expansion mode for years, raiding the budget carrier market for Spanish flyer Vueling, Irish operater Aer Lingus, launching its LEVEL brand last year, regularly opening new long-haul routes to the US, and now pursuing Norwegian with vigour.

Hop on board

Group traffic increased by 3.4% in the year to April, while capacity rose by 4.9%. Passenger revenues are also increasing, while pre-tax profits hit EUR246m between January and March, against just EUR93m a year earlier. The industry outlook seems relatively benign, with IATA recently predicting a ninth consecutive year of solid financial returns for the industry, although it cut its airline profit forecasts due to rising labour costs and interest rates.

The rising oil price could also be a headwind, as could any slowdown in the global economy. The stock yields a handsome 4.1%, which is lower than BT's but looks far more stable, with cover of 3.9. Forecast earnings growth of 7% this year and 6% in 2019 are also encouraging. Both BT and International Consolidated Airlines are bargains, but the carrier looks the safer buy today.

Buy-And-Hold Investing

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harveyj 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.