Picture supply: Getty Photographs
The FTSE 100 smashed by means of 8,000 factors in April, and hasn’t seemed again since. And its climb since 2020 is already making that 12 months’s inventory market crash fade into historical past.
However I believe shares within the well-known London Footsie nonetheless look grime low cost, and I need to inform you why.
Low index valuation
In comparison with different main inventory market indexes, the FTSE 100 is on a considerably decrease price-to-earnings (P/E) ratio.
The quoted values rely on who we ask, however it’s round 12 proper now, based mostly on forecast earnings. That’s low in comparison with a long-term common of round 15.
And, it’s additionally lower than half the US S&P 500 P/E, which stands at 28. Apparently, that’s a bit above the the Nasdaq‘s ratio of 26. With the tech stock index home to some high-flyers, it might still be cheap even though it’s up at report ranges.
Now, the FTSE 100’s low valuation right now could be justified, contemplating the UK’s excessive rates of interest and bond yieds. These make different investments look extra enticing. However that may solely be quick time period, absolutely.
Buybacks and takeovers
If I have a look at the inventory market information on simply at some point, I see 13 firms within the FTSE 100 shopping for again their very own shares. And there are near 30 firms doing it on completely different days in the intervening time.
It consists of Barclays (LSE: BARC), which is returning an enormous chunk of money to shareholders.
With Q1 outcomes, the financial institution introduced a “plan to return at the least £10bn of capital to shareholders between 2024 and 2026, by means of dividends and share buybacks, with a continued desire for buybacks“.
That £10bn is almost a 3rd of the Barclays market cap!
It positive makes me suppose Barclays charges its personal shares as low cost.
The scent of takeovers is within the air too, and we practically noticed Anglo American purchased out by fellow miner BHP Group in Could. The bid valued Anglo at £34bn, forward of right now’s £29bn, however the board rejected it.
Low cost particular person shares
If we expect the FTSE 100 is undervalued, we might purchase an index tracker. I favor to decide on my particular person shares, although, as too many simply look too low cost to me.
I’ve talked about Barclays, so I’ll look nearer at that for example of why I believe the UK’s prime shares are good worth.
The Barclays share worth has performed effectively this 12 months. However we nonetheless see a P/E of solely seven based mostly on forecasts. And it might drop so much additional by 2026, as little as 4.6, if the analysts have it proper.
There’s no actual shock that brokers have a reasonably robust purchase consensus out for Barclays proper now.
The financial institution does face dangers, and I believe it’s prone to see margins squeezed when the inevitable rate of interest cuts occur. So we’d see share worth weak point till the UK settles to new long-term charges. I anticipate volatility, at the least.
However I do suppose Barclays is a shining instance of why I see FTSE 100 shares as low cost.
