Why WPP plc could be a better FTSE 100 bargain than Lloyds Banking Group plc

I reckon the FTSE 100 has been behaving uncharacteristically over the past couple of years, and it's throwing up the kind of overlooked bargains that are typically found in the lower divisions of the stock market.

One of those, in my view, is media group WPP(LSE: WPP), whose shares have fallen by 22% over the past 12 months, to 1,383p -- though the price has actually ticked up by 10% in the past month, so maybe the market is starting to see what I see.

WPP has actually recorded a pretty impressive five years of solid EPS progress -- and though that is forecast to slow a little next year, we're still looking at predictions of around 5% per year, which I reckon is just fine. It might be, however, that some of the share price fall has been down to investors taking some profit in the light of that.

Global acquisition

Whatever investors are doing, WPP itself is taking advantage of bargains when it sees them, and has just announced the acquisition of "a majority stake in ARBA, a digital consultancy". The firm is based in Hong Kong and "specialises in digital strategy and has strong expertise in the financial services industry" -- and it counts Prudential and Hang Seng Bank among its clients.

The deal, done via wholly-owned subsidiary Ogilvy & Mather, expands WPP's Far East presence -- and with annual revenues of almost $1.6bn from the greater China region, that can only be a good thing.

It also boosts my confidence in its progressive dividends, which look set to yield 4.3% this year and 4.5% next, while being around twice covered by earnings.

On a forward P/E of only 11.5, dropping to 11.1 on 2018 forecasts, I can only see a bargain here.

Top bank?

This doesn't mean I'm not happy with my holding in Lloyds Banking Group(LSE: LLOY).

But some folk are starting to get a bit skittish about the prospects for Lloyds -- and I have to agree that there's risk involved, coupled with relatively poor clarity for the banking sector, and that makes me think it is perhaps not the same sure-fire investment that I see in WPP.

Having said that, I was happy enough with October's Q3 results, which included an 8% rise in underlying profit for the nine months, to £6.6bn. The quarter was boosted by organic growth and by the acquisition of MBNA. Capital position looks good, with the bank telling us its "asset quality remains strong" despite a £539m impairment charge, and we saw a CET1 ratio of a very healthy 14.9%.

That was reinforced by November's Bank of England stress test (which this year included the simulation of rapidly rising interest rates, unemployment, and falls in property prices and GDP). Lloyds came through it just fine, and there's no capital action needed as a result.

Economic pressure

The risk comes from the declining economic outlook for the UK as the day of Brexit gets ever closer, and that's likely to put pressure on the banking sector -- and bad loans have already started rising at Lloyds. In turn, that could dampen future dividend prospects.

But I see far more pessimism than that already built into today's 66p share price, and on a forward P/E of only 8.3 and with well-enough covered dividend yields of better than 6% on the cards, I still see Lloyds as a buy.

The FTSE 100's best

I'd certainly include WPP and Lloyds among the FTSE 100 cash cows that I think deserve serious consideration for any long-term portfolio. And if you want to hear of some more great ideas to accompany them, check out our special report, The Fool's 5 Shares to Retire On.

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Alan Oscroft owns shares inLloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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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