In multiple ways, 2024 has been a good year so far when it comes to the flagship FTSE 100 index of leading companies.
The FTSE hit a new all-time high and is 7% higher than it was at the start of the year. It is 16% higher now than it was five years ago.
Despite that, I think some FTSE100 shares still look cheap.
So should I pile in now while I still can? Or might there be a danger lurking in the fact that some shares continue to look tastily valued?
The bull case
As an example, consider Standard Chartered (LSE: STAN).
Over the past year, the share price has barely moved. It us up less than 1%. Over five years, it has outperformed the FTSE 100 overall and moved up 21%.
Still, it looks cheap.
Not only is the Standard Chartered share price now less than half what it was in 2010, the price-to-earnings ratio is under 9.
Standard Chartered is a large multinational bank with a big customer base, strength in developing markets and long experience across multiple economic cycles. Pre-tax profits rose 5% in the first half compared to the same period last year.
On top of that, it has a yield of over 3%. With some FTSE 100 yields approaching high-single-digit percentages, that might not look great. But I would be happy earning over 3% of my investment annually in dividends, presuming they are maintained at the current level.
The bear case
Then again, maybe the fact that the share price has gone nowhere in the past year is an indicator I need to consider.
Banking performance in the UK could suffer as a weak economy pushes up loan defaults. Things could be even worse elsewhere – including some developing markets. Unlike FTSE 100 peers such as Natwest and Lloyds, they form a key part of the Standard Chartered business.
That story – of domestic challenges in the UK economy combined with wider worries – helps explain the weakness of many FTSE 100 shares in recent years, I feel. The UK stock market lacks the vibrant tech sector that has helped power US investment sentiment in recent years.
The British economy does not look in great shape and ongoing political uncertainty has dampened some investors’ enthusiasm for the market. In other words, maybe many FTSE 100 shares are priced the way they are for a reason – and are not as cheap as they may first seem.
What I’m doing now
I think there are some reasons many investors have been avoiding the UK market. That could continue to be the case, so just because some FTSE 100 shares look cheap now does not prevent them falling from here. Indeed, if we see a large global economic downturn, they could go down a lot.
But I am buying! Why?
As a long-term investor, I want to buy parts of great businesses for less than I think they are ultimately worth. I reckon a lot of FTSE 100 shares meet that description at the moment, so this summer I have been taking the opportunity to add some to my portfolio.
I do not like the risks in the banking sector currently, so Standard Chartered has not been one of them.
The post FTSE 100 shares: still cheap, but for how long? appeared first on The Motley Fool UK.
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C Ruane has positions in NatWest Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc and Standard Chartered Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
