This FTSE 100 stock looks a total steal to me

As a long-term investor, I’m always searching for undervalued shares. I don’t want to buy into bombed-out businesses and instead prefer to invest in ‘fallen angels’. These are solid companies whose shares have fallen too far.

Thus, I’m a bargain hunter, with my favourite hunting ground being the FTSE 100.

My investing strategy is simple

Armed with 37 years of experience, I’ve refined my investing strategy over decades. Today, I keep it simple. I buy into solid, established firms whose shares trade on low multiples of earnings.

Also, I much prefer stocks that pay dividends — regular cash amounts paid by companies to shareholders. Although most UK-listed companies don’t pay dividends, almost all FTSE 100 members do. Therefore, I conduct frequent stock screenings of the FTSE 100 (and the FTSE 250) to find shares meeting my value criteria.

During one recent search, I found an undervalued gem.

Anglo American is not an ESG share

When I find stocks that tick all of my boxes, I rarely hesitate to buy them. But one value share I missed is Anglo American (LSE: AAL). London-headquartered Anglo American is a leading global miner and the world’s largest producer of platinum.

The group also digs up and sells copper, diamonds, iron ore, nickel, and coal for steelmaking. As a mega-miner, Anglo American’s activities harm our environment. Hence, many ESG (Environmental, Social and Governance) investors wouldn’t buy the stock.

However, without mined products, the global economy would collapse almost overnight.

Anglo’s share slide

As I write, Anglo shares trade at 2,672.5p, making this GBP35.9bn firm a Footsie heavyweight. Yet its shares have dived in 2022-23, as seen below:

Over the past year, this stock has lost over a third of its value. However, it has leapt by almost two-thirds in the last half-decade.

These figures exclude cash dividends, which would boost these returns by several percentage points each year.

This share looks undervalued

At its 52-week high, the Anglo American share price peaked at 4,292.5p on 19 April 2022. It then crashed as low as 2,437.5p on 16 March, before rebounding 235p (+9.6%) to its current level. Alas, I’m frustrated that I didn’t see this clear buying opportunity last month.

Had I seen Anglo shares trading below GBP25, I’d have rushed to buy some. Even so, despite their recent recovery, the shares look underpriced to me. They trade on a modest price-to-earnings ratio of nine, for an earnings yield of 11.2%.

That’s a decent discount to the wider FTSE 100. What’s more, Anglo’s market-beating dividend yield of 6.1% a year is over 1.5 times the Footsie’s yearly cash yield of 4%. Also, it’s covered 1.8 times by earnings, which is a fair margin of safety.

That said, Anglo has cut its dividend on occasion, most recently in 2015, 2016 and 2020. And experience has taught me that mining companies’ earnings can be volatile — as can their share prices. Indeed, I’ve made and lost fortunes investing in mining stocks.

Summing up, had I any spare cash today, I’d happily buy this FTSE 100 stock at current price levels!