Picture supply: Getty Photos
In a number of methods, 2024 has been a very good yr up to now relating to the flagship FTSE 100 index of main firms.
The FTSE hit a brand new all-time excessive and is 7% increased than it was firstly of the yr. It’s 16% increased 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 may there be a hazard lurking in the truth that some shares proceed to look tastily valued?
The bull case
For instance, think about Normal Chartered (LSE: STAN).
Over the previous yr, the share worth has barely moved. It us up lower than 1%. Over 5 years, it has outperformed the FTSE 100 total and moved up 21%.
Nonetheless, it appears low-cost.
Not solely is the Normal Chartered share worth now lower than half what it was in 2010, the price-to-earnings ratio is beneath 9.
Normal Chartered is a big multinational financial institution with an enormous buyer base, power in growing markets and lengthy expertise throughout a number of financial cycles. Pre-tax earnings rose 5% within the first half in comparison with the identical interval final yr.
On prime of that, it has a yield of over 3%. With some FTSE 100 yields approaching high-single-digit percentages, that may not look nice. However I’d be blissful 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 yr is an indicator I want to think about.
Banking efficiency within the UK may endure as a weak financial system pushes up mortgage defaults. Issues might be even worse elsewhere – together with some growing markets. In contrast to FTSE 100 friends corresponding to Natwest and Lloyds, they type a key a part of the Normal Chartered enterprise.
That story – of home challenges within the UK financial system mixed with wider worries – helps clarify the weak point of many FTSE 100 shares in recent times, I really feel. The UK inventory market lacks the colourful tech sector that has helped energy US funding sentiment in recent times.
The British financial system doesn’t look in nice form and ongoing political uncertainty has dampened some traders’ enthusiasm for the market. In different phrases, perhaps many FTSE 100 shares are priced the way in which they’re for a motive – and usually are not as low-cost as they could first appear.
What I’m doing now
I feel there are some causes many traders have been avoiding the UK market. That would proceed to be the case, so simply because some FTSE 100 shares look low-cost now doesn’t forestall them falling from right here. Certainly, if we see a big international financial downturn, they might go down loads.
However I’m shopping for! Why?
As a long-term investor, I wish to purchase elements of nice companies for lower than I feel they’re finally price. I reckon a whole lot of FTSE 100 shares meet that description in the mean 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 present, so Normal Chartered has not been one in all them.
