FTSE 100 stocks have torn higher at the beginning of 2023. And thanks to a weak pound and signs of falling/plummeting inflation, London’s premier share index struck record highs above 7,900 points.
Yet many FTSE index companies still look dirt-cheap at current price levels. In fact Jason Hollands, managing director at investment platform Bestinvest, has described UK large-cap shares as “a bargain on our own doorstep.”
“Very attractively valued”
Hollands says that “some may wonder whether a peak in the index might be a sign that UK-larger companies shares are now expensive and pondering whether it is a time to sell rather than buy or hold.”
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But he explains that “the current level of the FTSE 100 should not cause any concern” and that Britain’s larger companies are in fact “very attractively valued.”
The FTSE index is currently trading on a forward price-to-earnings (P/E) ratio of 10.2 times, Hollands notes. This is far below an average of 15.2 times for global equities, and also well below an historical average of 12.5 times for UK blue-chips.
This cheapness reflects the lead index’s underperformance compared with overseas stock markets in recent times. In fact Hollands says that “UK equities have been unloved for several years.”
Impressive dividend yields
Hollands adds that an average forward dividend yield of 4.5% also makes FTSE 100 shares highly attractive today.
He notes that “this is the highest of any major developed equity market and it is also a healthy premium to the 3.05% yield [of] 10-year gilts.”
3 FTSE 100 shares on my radar
Like almost everyone else, I only have a limited amount of cash I can use to buy UK shares. But I’ve built a shopping list of top value stocks I’d like to buy if I have money to invest.
Several of these are on the FTSE 100 such as Legal & General and Aviva. Earnings at these insurers could suffer in 2023 as economic conditions worsen. But over the long term, I expect them to deliver exceptional returns as demographic changes (like rapid ageing in the West) drive demand for their financial products
At current prices they look like particularly attractive buys too. Both trade on a forward P/E ratio below 9 times. Meanwhile, the Legal & General dividend yield sits at 7.8% while Aviva’s rings in at a juicy 7.3%.
I’d also like to invest in Glencore very soon. Demand for its commodities is likely to soar this decade thanks to trends like the green energy revolution, emerging market urbanisation and a fresh consumer electronics boom.
Sure, profits could disappoint in the near term if Covid-19 cases in China explode again and lockdowns return. Yet at current prices, I still think it’s a brilliant bargain.
The miner trades on a P/E ratio of 5.9 times for 2023. And it carries a mighty 9.1% dividend yield.
