Stock market

1 dirt cheap FTSE 100 stock investors should consider buying in June

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one FTSE 100 I think the stock may be an overlooked bargain Imperial Brands (LSE: IMB).

Here’s why I think investors need to keep a close eye on the tobacco kingpin for juicy returns.

Imperial shares up

The overall UK prime index has risen recently due to better-than-expected economic developments. In turn, it wouldn’t surprise me to see Imperial shares move higher as well.

In general, they have been struggling for many years due to a reduction in the number of smokers. Also, anti-smoking sentiment is on the rise, which has not helped share prices.

Over the 12-month period, Imperial shares are up 13% from 1,698p at this time last year to their current level of 1,925p.

My investment case explained.

Starting with Bear’s case, it is hard to ignore some of the issues mentioned earlier, namely the decline in smoking rates and the rise in anti-smoking sentiment. The obvious issue here is that declining sales and potential legislative changes could have a real impact on performance, profitability and investor appetite for the stock.

In addition, global economic woes meant that Imperial – and many other businesses – had to raise prices. This aspect worries me, as it could mean another blow to the performance level. I will keep an eye on it.

Moving to the other side of the coin, Imperial’s storied track record of performance, generous rewards policy, and brand strength and reach are all major plus points. However, I understand that past performance is no guarantee of the future.

Imperial and other tobacco firms are developing next-generation products to reduce smoking. These include vapes and other non-tobacco alternatives. Sales of these products are growing rapidly, which can compensate for weak sales of traditional products. This can prevent timely cash flow.

Breaking down some basics, Imperial shares are cheap in my opinion. They currently trade at a price-to-earnings ratio of just seven. Any stock with a P/E ratio below 10 usually catches my attention.

Additionally, the dividend yield of over 7.5% is extremely attractive, and close to the FTSE 100 average of 4%. However, it is worth noting that profits are never guaranteed.

Cash is king.

I can understand why some investors are reluctant to buy Imperial shares. When you add falling numbers, the rise of ESG investing, and global governments scrambling to curb smoking levels, there are real risks involved.

However, for me Imperial still represents a great opportunity to earn profits and grow wealth. Let’s be honest, changing laws and drastically reducing smoking levels is not an overnight endeavor. It can take years, maybe even decades!

Imperial aims to continue handing out cash hand over fist if you ask me. If the firm’s history has taught me anything, it’s that it won’t hesitate to reward investors who come along for the ride.

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