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In many ways, 2024 has been a good year so far when it comes to the flagship. FTSE 100 Index index of leading companies.
The FTSE hit a new all-time high and is now 7% above where it was at the start of the year. It is now 16% above where it was five years ago.
Despite this, I think some FTSE100 stocks still look cheap.
So should I invest now while I still can? Or could there be some danger lurking in the fact that some stocks still look tastefully valued?
The case of the bull
As an example, consider Chartered standard (London: STAN).
Over the past year, the share price has barely budged, up less than 1%. Over five years, it has outperformed the broader FTSE 100, up 21%.
Still, it looks cheap.
Not only is Standard Chartered's share price now less than half what it was in 2010, but the price-to-earnings ratio is below 9.
Standard Chartered is a large multinational bank with a broad client base, strength in developing markets and extensive experience across multiple economic cycles. Pre-tax profits rose 5% in the first half compared with the same period last year.
Plus, it has a yield of over 3%. Considering that some FTSE 100 indices have yields approaching high single-digit percentages, that may not seem very good. But I would be happy if I earned more than 3% of my investment annually in dividends, assuming they stay at the current level.
The case of the bear
On the other hand, perhaps the fact that the stock price has not changed over the past year is an indicator you should take into account.
Banking performance in the UK could be hit as a weak economy drives loan defaults. Things could be even worse elsewhere, including some developing markets. Unlike its FTSE 100 peers, such as Natwest and Lloydsform a key part of Standard Chartered's business.
I think that story – of domestic challenges in the UK economy combined with broader concerns – helps explain the weakness of many FTSE 100 stocks in recent years. The UK stock market lacks the vibrant technology sector that has helped boost US investor sentiment in recent years.
The UK economy does not appear to be in great shape and the current political uncertainty has dampened some investors' enthusiasm for the market. In other words, perhaps many FTSE 100 stocks are priced as they are for a reason and are not as cheap as they appear at first glance.
What I'm doing now
I think there are a few reasons why many investors have been avoiding the UK market. This could continue to be the case, so the fact that some FTSE 100 stocks look cheap now does not prevent them from falling from now on. In fact, if we see a major global economic downturn, they could fall a lot.
But I'm going to buy it! Why?
As a long-term investor, I like to buy parts of great companies for less than I think they are ultimately worth. I think many FTSE 100 stocks fit that description at the moment, so this summer I took the opportunity to add some to my portfolio.
I don't like the risks that exist in the banking sector at the moment, so Standard Chartered has not been one of them.
