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The FTSE 100 smashed by 8,000 factors in April, and hasn’t appeared again since. And its climb since 2020 is already making that yr’s inventory market crash fade into historical past.
However I feel shares within the well-known London Footsie nonetheless look grime low cost, and I wish to let you know 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 depend upon who we ask, but it surely’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 inventory index house to some high-flyers, it would nonetheless be low cost though it’s up at report ranges.
Now, the FTSE 100’s low valuation in the present day is perhaps 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 take a look at the inventory market information on simply at some point, I see 13 corporations within the FTSE 100 shopping for again their very own shares. And there are near 30 corporations doing it on completely different days in the intervening time.
It contains Barclays (LSE: BARC), which is returning a giant chunk of money to shareholders.
With Q1 outcomes, the financial institution introduced a “plan to return a minimum of £10bn of capital to shareholders between 2024 and 2026, by dividends and share buybacks, with a continued choice for buybacks“.
That £10bn is almost a 3rd of the Barclays market cap!
It certain makes me suppose Barclays charges its personal shares as low cost.
The odor of takeovers is within the air too, and we almost noticed Anglo American purchased out by fellow miner BHP Group in Might. The bid valued Anglo at £34bn, forward of in the present day’s £29bn, however the board rejected it.
Low-cost particular person shares
If we predict the FTSE 100 is undervalued, we might purchase an index tracker. I choose 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 feel the UK’s high shares are good worth.
The Barclays share value has finished nicely this yr. However we nonetheless see a P/E of solely seven based mostly on forecasts. And it will drop loads 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 feel it’s prone to see margins squeezed when the inevitable rate of interest cuts occur. So we would see share value weak spot till the UK settles to new long-term charges. I count on volatility, a minimum of.
However I do suppose Barclays is a shining instance of why I see FTSE 100 shares as low cost.
