2 FTSE 100 value stocks I'd buy and hold forever

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HSBC, Paris

Not all successful investors buy and sell stocks on a regular basis. By focusing on stocks you'd be happy to keep forever, you can minimise trading costs and build a portfolio which offers a rising long-term income.

Today I'm going to look at two FTSE 100 stocks which I believe offer great value at current levels for long-term investors.

DIY investing

B&Q owner Kingfisher (LSE: KGF) has lagged the FTSE 100 over the last six months, but I believe this Anglo-French group is a cut above most other retailers.

The group reported a 2.3% increase in like-for-like sales last year, excluding exchange rate gains. Retail profit, the group's measure of adjusted operating profit, rose by 13.5%, to £847m, or by 7.1% excluding currency gains.

The significance of this is that Kingfisher's profits rose more quickly than its sales, indicating that profit margins are rising. The group is now one year into a five-year plan intended to cut costs and drive significant growth.

Chief executive Véronique Laury believes that by unifying the group's supply chains, building online services and improving product ranges, she will be able to deliver a sustainable increase in operating profit of £500m per year by 2020.

Unlike many companies entering into a transformation programme, Kingfisher is starting from a position of financial strength. The group generates strong free cash flow and ended last year with net cash of £641m, up from £546m one year earlier.

Shareholders benefited from a £200m share buyback in 2016, in addition to the regular dividend. Kingfisher has recovered from recent lows but still looks attractive to me, on a 2017/18 forecast P/E of 13.9, falling to a P/E of 12.2 in 2018/19.

Although the dividend yield of 3.3% may seem modest, I believe this well-covered payout could increase significantly over the next two or three years. In my view Kingfisher deserves a buy rating at current levels.

A bank you can trust?

Banks have been through the mill in recent years, but I don't agree with suggestions that the sector remains one to avoid. In my view there are a number of attractive buys in the banking sector at the moment.

One of my top choices -- especially for income -- is Anglo-Asian giant HSBC Holdings (LSE: HSBA), which currently offers a 6.1% dividend yield.

HSBC shares have risen by 36% over the last year, but still look affordable to me. The current share price of 636p is broadly in line with book value, which is about 615p at current exchange rates.

Earnings are expected to rise to $0.61 per share this year, providing cover for the group's expected dividend payout of $0.51 per share. Although the level of cover is low, management have said they are "confident of maintaining [the dividend] at this level".

The bank's shares currently trade on a forecast P/E of 13.6, falling to a P/E of 12.4 for 2018. Because HSBC publishes its accounts in US dollars, the group's share price could suffer if the recent recovery of the pound against the dollar continues.

Despite this risk, I believe that HSBC's size and global diversity is likely to enable the bank to deliver reliable earnings and dividend payouts for the foreseeable future. I'd rate the stock as a dividend buy.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.