Every quarter I take a look at the top FTSE 100 companies in each of the index’s 10 industries to see how they shape up as a potential starter portfolio.

The table below shows the 10 heavyweights and their valuations based on forecast 12-month price-to-earnings (P/E) ratios and dividend yields.

Company Industry Recent share price (p) P/E Yield (%)
ARM Holdings Technology 1,088 29.3 1.0
BAE Systems (LSE: BA) Industrials 506 12.6 4.4
British American Tobacco Consumer Goods 4,694 19.3 3.6
GlaxoSmithKline Health Care 1,560 17.4 5.1
HSBC Holdings Financials 453 10.6 7.4
National Grid (LSE: NG) Utilities 1,061 17.0 4.2
Rio Tinto Basic Materials 2,217 18.6 3.4
Royal Dutch Shell Oil & Gas 2,019 19.6 6.4
Tesco Consumer Services 171 22.8 0.9
Vodafone (LSE: VOD) Telecommunications 223 34.2 5.2

To get a feel for overall value, the table below shows average P/Es and yields for the group for the last four quarters and four years. (The averages exclude ARM, with its typically elevated tech-sector P/E, and also Vodafone, whose P/E has been anomalous since its sale of Verizon Wireless).

  P/E Yield (%)
July 2016 17.2 4.4
April 2016 16.4 5.0
January 2016 13.7 6.0
October 2015 13.7 5.6
July 2015 14.4 5.2
July 2014 13.2 4.5
July 2013 11.9 4.6
July 2012 10.7 4.7

Despite Brexit turbulence, the shares of seven of the eight heavyweights are higher now than at my April review (nine out of 10 including ARM and Vodafone) which has pushed the average P/E up to a new high of 17.2.

My rule of thumb for the companies as a group is that an average P/E below 10 is bargain territory, 10-14 is decent value and above 14 starts to move towards expensive.

Whatever it takes

Vodafone may not seem like an obvious share to highlight positively at the present time given its P/E of 34.2 and the fact that 55% of group profits come from Europe (the UK provides 11%). But I think the telecom giant offers good value.

The company announced earlier this year that it will start to report its financial results in euros, rather than sterling, has expressed its determination not to be excluded from the EU’s giant new single digital market, and indicated its willingness to move its headquarters from the UK, if necessary.

Vodafone’s high P/E is an artefact of its $130bn sale of Verizon Wireless, and improving free cash flow following a period of massive investment will help support the company’s very attractive dividend yield of 5.2%.

Highly stable

National Grid makes 62% of its profits from UK electricity transmission, gas transmission and distribution, and 29% from US regulated businesses. With the P/E currently at 17, the shares are at a bit of a premium price, but I believe it’s a price worth paying.

This is a highly stable business, and a solid, long-term core holding, ideal for a starter portfolio. In the shorter term, National Grid looks less vulnerable to earnings downgrades than many companies, and a 4.2% dividend yield only adds to the attraction.

Considerable appeal

Most big companies were banging the drum for a Remain vote ahead of the EU referendum, and BAE Systems was one of the more vocal. However, behind the rhetoric is a company whose largest markets are the US, UK and Saudi Arabia, with only 12% of revenue coming from Europe.

BAE hasn’t said much post-Brexit, but analysts at Berenberg reckon any impact would be “benign“. In my view, a P/E of 12.6 and a 4.4% dividend yield have considerable appeal.

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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended ARM Holdings, HSBC Holdings, Rio Tinto, and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.