As I write this, FTSE100 is at 8,370 – not far from its previous high of 8,474. Nevertheless, I think UK stocks are very valuable compared to the rest of the world.
US stocks are high quality but expensive, while emerging markets have lower prices but different risks. In my view, looking for UK stocks offers the best of both worlds.
US stocks
There is no doubt S&P500 includes some of the largest and strongest companies in the world. Amazon And Berkshire-Hathaway are unmatched elsewhere.
The problem is that it’s no secret that these are really excellent companies with enormous profitability. And their prices usually reflect that.
Currently, the average price-earnings ratio (P/E) of the FTSE 100 is 15, while that of the S&P 500 is 27. This means that investors have to pay significantly more on average for US stocks.
There are exceptions on both sides – some UK stocks seem expensive and there are US stocks that I think are cheap. But in general, companies like Microsoft And Meta-platforms are not cheap.
Emerging markets
On the other hand, shares of companies from emerging markets appear comparatively cheap. The P/E ratio of FTSE Emerging Index is about 15, which is much lower than in the USA.
However, investing in emerging markets can be risky. One risk is political in nature – because the owners of Alibaba As investors know, geopolitical tensions can have a significant impact on investment returns.
Another problem is the currency. The Argentine peso has lost 95% of its value against the pound in the last five years, making the money used by companies like MercadoLibre less valuable.
Argentine Peso/British Pound 2019-24
Created at TradingView
FTSE 100 shares do not always exclude this risk – Airtel Africa was hit by the decline of the Nigerian Naira and Burberry recorded declining sales in China. But that is not always the case.
Stay close to home
I think there are opportunities in the UK markets to buy stocks that offer the best of both worlds. Right-wing movement (LSE:RMV) is a good example.
The stock is expensive by British standards, but the company’s operating margins can compete with even the strongest US companies. And a P/E ratio of 23 is low compared to companies like Apple And alphabet.
Operating margins of Rightmove, Apple and Alphabet 2014–24
Created at TradingView
Since the company generates 99 percent of its revenue in the UK, there is no obvious currency risk. And the political situation is more stable than in some other countries.
Of course, there are still risks – Rightmove’s fortunes are closely tied to the UK property market. This is something the company cannot control, but it will do well if property prices continue to rise.
Investing in the UK
I’m not saying that every FTSE 100 share is a good buy and that no other share is worth considering. There are UK stocks I avoid and US stocks I’m currently considering buying.
However, I believe that the chances of finding a good investment are higher in the UK than elsewhere. A combination of low prices and political stability should be attractive to investors.
The post As the FTSE 100 hits new highs, UK shares still look cheap appeared first on The Motley Fool UK.
Further reading
Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Stephen Wright has positions at Amazon, Apple, and Berkshire Hathaway. The Motley Fool UK has recommended Airtel Africa Plc, Amazon, Apple, Burberry Group Plc, MercadoLibre, Meta Platforms, Microsoft, and Rightmove Plc. Views on companies mentioned in this article are those of the author and may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners, and Pro. At The Motley Fool, we believe that considering a broad range of insights makes us better investors.
Motley Fool UK 2024
