Stock market

3 reasons to think FTSE 100 shares are still cheap

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gave FTSE 100 Broke through 8,000 points in April, and haven’t looked back since. And its climb since 2020 is already eclipsing that year’s stock market crash in history.

But I think shares in the iconic London footy still look cheap, and I want to tell you why.

Low index diagnosis

Compared to other leading stock market indices FTSE 100 At a significantly lower price-to-earnings (P/E) ratio.

The listed values ​​depend on who we ask, but it’s currently around 12 based on forecast earnings. This is lower than the long-term average of about 15.

And, that’s less than half of the US. S&P 500 P/E, which stands at 28. Interestingly, it is slightly above that. NasdaqRatio of 26. With the tech stock index home to some high flyers, it could still be cheap even though it’s at record levels.

Now, today’s low valuation of the FTSE 100 can be justified given the UK’s high interest rates and bond yields. These make other investments more attractive. But this can only be short-lived, of course.

Buybacks and takeovers

If I look at just one day’s stock market news, I see 13 companies in the FTSE 100 buying back their own shares. And currently around 30 companies are doing this on different days.

It includes Barclays (LSE: BARC ), which is returning a large chunk of cash to shareholders.

Along with the Q1 results, the bank announced that “It plans to return at least £10bn of capital to shareholders between 2024 and 2026, through dividends and share buybacks, with buybacks continuing to be a priority.

That’s almost a third of Barclays’ market cap of £10bn!

It certainly makes me think that Barclays undervalues ​​its shares.

The smell of takeover is in the air, too, and we almost saw it Anglo American Bought by a fellow miner. BHP Group in May. Anglo was valued at £34bn before today’s £29bn, but was rejected by the board.

Cheap individual shares

If we think the FTSE 100 is undervalued, we can buy an index tracker. I prefer to pick my individual stocks, though, so many seem too cheap to me.

I’ve mentioned Barclays, so I’ll take a closer look at this as an example of why I think the top UK shares are well priced.

Barclays’ share price has done well this year. But we still see a P/E of just seven on a forecast basis. And it will drop even more by 2026, down to 4.6, if analysts are right.

Not surprisingly, brokers have a fairly strong buy consensus on Barclays right now.

Banks face risks, and I think margins are likely to squeeze during the inevitable interest rate cut. So we could see weakness in share prices until the UK settles on new long-term rates. I expect minimal volatility.

But I think Barclays is a shining example of why I view FTSE 100 stocks as cheap.


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