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In many ways, 2024 has been a good year for the flagship FTSE100 Index of leading companies.
The FTSE has hit a new all-time high, up 7% from the start of the year and is now 16% higher than it was five years ago.
Nevertheless, some FTSE100 stocks still seem cheap to me.
So should I get in now while I still can? Or is there perhaps a danger in the fact that some stocks still appear to be attractively valued?
The Bull Case
For example, let us consider Standard Chartered (LSE:STAN).
Over the last year, the share price has barely changed, rising by less than 1%. Over five years, it has outperformed the FTSE 100 as a whole, rising by 21%.
Still, it looks cheap.
Not only is Standard Chartered’s share price today less than half what it was in 2010, the price-earnings ratio is also below 9.
Standard Chartered is a large multinational bank with a large customer base, strength in developing markets and long experience across multiple economic cycles. Profit before tax increased by 5% in the first half of the year compared to the same period last year.
On top of that, it has a yield of over 3%. That might not look great given some returns in the FTSE 100 are approaching high single digits. But I would be happy to earn over 3% of my investment in dividends annually, assuming they stay at current levels.
The Bear Case
On the other hand, perhaps I should also consider the fact that the share price has not changed in the last year.
Bank performance in the UK could suffer as a weak economy increases loan defaults. Elsewhere – including in some developing countries – it could be even worse. Unlike FTSE 100 peers such as Natwest And LloydsThey form an important part of Standard Chartered’s business.
This story – of domestic challenges in the UK economy combined with wider concerns – helps, in my view, to explain the weakness of many FTSE 100 stocks in recent years. The UK stock market lacks the dynamic technology sector that has helped bolster US investment sentiment in recent years.
The UK economy doesn’t seem to be in the best shape and ongoing political uncertainty has dampened some investors’ enthusiasm for the market. In other words, perhaps many FTSE 100 stocks are valued as they are for a reason – and not as cheap as they might seem at first glance.
What I am doing now
I think there are a few reasons why many investors have avoided the UK market. That could continue to be the case. Just because some FTSE 100 stocks look cheap now doesn’t mean they won’t fall from here. If there is indeed a major global economic downturn, they could fall sharply.
But I buy! Why?
As a long-term investor, I like to buy shares in great companies at a price lower than I believe they are ultimately worth. I expect that description fits many FTSE 100 stocks at the moment, so I took the opportunity this summer to add some of them to my portfolio.
I don’t like the risks in the banking sector right now, and Standard Chartered is not one of them.
