This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
MARKET COMMENT
By
It's time to crank up your index tracker contributions. Booming company profits and a bargain price to earnings (P/E) ratio make this market a buy. Total earnings from Britain's top 100 businesses have surged a massive 32% in 2004, reaching the equivalent of 322 FTSE 100 points -- an all-time high:
End of
FTSE 100
P/E
Blue chip earnings
(FTSE 100 points)
Jan 2004
4,391
17.53
250
Feb 2004
4,492
17.59
255
Mar 2004
4,386
16.49
266
Apr 2004
4,490
17.13
262
May 2004
4,431
16.52
268
Jun 2004
4,464
16.48
271
Jul 2004
4,413
15.42
286
Aug 2004
4,459
14.94
298
Sep 2004
4,571
15.12
302
Oct 2004
4,624
14.34
322
Yesterday
4,693
14.52
323
(Data from FTSE/Bloomberg)
To put this year's performance into context, blue chip earnings produced between March 1995 and December 2003 ranged from 205 to 277 FTSE 100 points.
Favourable economic conditions, the benefits from prior restructures and fewer instances of 'kitchen sinking' are perhaps some of the reasons why profits have taken off in 2004. Yet the market is failing to appreciate the bottom-line progress.
At last night's close, the FTSE 100 stood at 4,693 and was valued at 14.52 times earnings. Save for the last few trading days, there have been just two other occasions in the last ten years when the index has traded on a lower P/E:
1. July 1996: The P/E for the FTSE 100 averaged 14.40 during July 1996. At the low, when the index hit 3,632 on the 16th, the P/E was 14.02. One year later, the index had rallied to 4,964 -- a gain of 37%.
2. 13 March 2003: At the bottom of the bear market, the FTSE 100 hit 3,287 and registered a P/E of 14.43. Twelve months on, the index had rallied to 4,467 -- a gain of 36%.
Today's low P/E is not due to numerous multinationals being on the verge of collapse. On the contrary, Fool earnings estimates indicate many market heavyweights are expected to record some hefty profit improvements throughout 2005.
For instance, brokers expect HSBC (LSE: HSBA) to witness earnings growth of 9% next year, Vodafone (LSE: VOD) to witness 10%, Royal Bank of Scotland (LSE: RBS) 11%, AstraZeneca (LSE: AZN) 16%, Rio Tinto (LSE: RIO) 36% and BHP Billiton (LSE: BLT) 45%. Indeed, a quick trawl on a popular share filter revealed just six blue chips are set to report earnings contractions within the next year or two.
The upshot? If market P/E history is any guide, a 36% rally during the next twelve months seems a genuine possibility. Using last Friday as a base -- when the market's P/E fell to 14.34 and the FTSE 100 closed at 4,624 -- don't be surprised to find London's leading index at 6,289 by Halloween 2005.
A 36% rally not enough? You can discover which shares Maynard thinks will beat the market in the Motley Fool's Value Investor newsletter. For a free no-obligation trial of the newsletter, and access to past editions, click here. Maynard contributes regularly to an index tracker and also owns a few iShares FTSE 100, an exchange-traded fund that tracks the FTSE 100.