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In a number of methods, 2024 has been a superb 12 months thus far in terms of the flagship FTSE 100 index of main corporations.
The FTSE hit a brand new all-time excessive and is 7% greater than it was at the beginning of the 12 months. It’s 16% greater now than it was 5 years in the past.
Regardless of that, I feel some FTSE100 shares nonetheless look low cost.
So ought to I pile in now whereas I nonetheless can? Or would possibly there be a hazard lurking in the truth that some shares proceed to look tastily valued?
The bull case
For instance, think about Customary Chartered (LSE: STAN).
Over the previous 12 months, the share worth has barely moved. It us up lower than 1%. Over 5 years, it has outperformed the FTSE 100 general and moved up 21%.
Nonetheless, it seems to be low cost.
Not solely is the Customary Chartered share worth now lower than half what it was in 2010, the price-to-earnings ratio is beneath 9.
Customary Chartered is a big multinational financial institution with a giant buyer base, power in creating markets and lengthy expertise throughout a number of financial cycles. Pre-tax income rose 5% within the first half in comparison with the identical interval final 12 months.
On high of that, it has a yield of over 3%. With some FTSE 100 yields approaching high-single-digit percentages, which may not look nice. However I’d be joyful incomes over 3% of my funding yearly in dividends, presuming they’re maintained on the present degree.
The bear case
Then once more, perhaps the truth that the share worth has gone nowhere up to now 12 months is an indicator I would like to think about.
Banking efficiency within the UK may endure as a weak economic system pushes up mortgage defaults. Issues could possibly be even worse elsewhere – together with some creating markets. In contrast to FTSE 100 friends reminiscent of Natwest and Lloyds, they kind a key a part of the Customary Chartered enterprise.
That story – of home challenges within the UK economic system mixed with wider worries – helps clarify the weak spot of many FTSE 100 shares lately, I really feel. The UK inventory market lacks the colourful tech sector that has helped energy US funding sentiment lately.
The British economic system doesn’t look in nice form and ongoing political uncertainty has dampened some buyers’ enthusiasm for the market. In different phrases, perhaps many FTSE 100 shares are priced the way in which they’re for a cause – and are usually not as low cost as they might first appear.
What I’m doing now
I feel there are some causes many buyers have been avoiding the UK market. That might proceed to be the case, so simply because some FTSE 100 shares look low cost now doesn’t stop them falling from right here. Certainly, if we see a big international financial downturn, they might go down lots.
However I’m shopping for! Why?
As a long-term investor, I need to purchase components of nice companies for lower than I feel they’re finally value. I reckon a number of FTSE 100 shares meet that description in the intervening time, so this summer season I’ve been taking the chance so as to add some to my portfolio.
I don’t just like the dangers within the banking sector at the moment, so Customary Chartered has not been one among them.
