Are these FTSE 100 value stocks brilliant bargains or investment traps?

At FTSE 100 continued to soar and was struck fresh all-time peak around the 7,500-point mark. However, London’s main stock index remains packed with top-class value stocks despite its recent strength. A large number of trades in depressed price-to-earnings ratios (P/E) while some also brings the highest dividend yield in the market.

Here are two blue-chip stocks that caught my eye. Should I buy for my Stocks and Shares ISA? Or does the low valuation of the paper give bad advice?

NatWest Group

High-street bank NatWest (LSE:NWG) trades on a P/E ratio of 6.7 times for 2023, while also offering a 5.4% dividend yield.

But like other high banks such as Lloyds and Barclays, I am not tempted to add this FTSE 100 share portfolio. These companies have huge exposure to the UK economy and they are facing a tidal wave of bad debt as the country goes into recession.

I am concerned with major mortgage lenders like NatWest because of spiraling home loan costs. Trade association UK Finance estimates that 715,000 households will see their home loan costs balloon to an average of £588 today at current interest rates of 4%. This raises the specter of additional defaults that could worsen as the Bank of England raises its benchmark rate.

The danger is great for NatWest because of its position as the second largest mortgage provider in Britain (after Lloyds).

On a brighter note, the bank’s push to increase its digital capabilities has paid off handsomely (around 60% of retail customers now do business via NatWest’s mobile app or website). This is a promising sign as most modern banking consumers demand a good online proposition.

But on balance, I think the risks of owning these FTSE 100 stocks outweigh the potential rewards.

BP

The news is more promising BP (LSE:BP.) in recent days. In fact, it was the FTSE 100’s biggest riser on Friday when Russia announced plans to cut oil production next month.

The country will cut crude oil production by 500,000 barrels per day in response to Western sanctions, he said. The news sent benchmark Brent oil up $85 a barrel as worries about a fossil fuel shortage grew.

Strong energy prices cause BP’s profits to record levels in 2022. Prices may remain elevated as the war in Ukraine continues.

But I’m not ready to buy major oil stocks for my portfolio. Even the low P/E ratio of 6.3 times or 4% dividend yield is enough to tempt me.

I believe the company’s low valuation reflects the risk it poses to investors. Oil prices could easily pull back quickly from current levels if key economic indicators remain volatile and central banks keep raising interest rates.

Rising demand for green energy also poses a major challenge for BP. While the oil major increases spending on renewable energy and alternative energy, it depends on the production of fossil fuels to drive down. Profits and thus dividends could be disappointing over the next decade as the world moves away from dirty fuel sources.