London's flagship index is trading on less than ten times earnings.
Remember the market turmoil of 2008 and 2009? When the FTSE slid by 48%, and naked fear stalked the streets?
I thought so. But I've news for you. Shares today are cheaper than they were back then.
That's right: Britain's blue chips are cheaper than they were this time last year, cheaper than they were this time in 2009, and cheaper than they were this time in 2008.
And while that July-to-July comparison doesn't quite capture the market low of 3 March 2009, when the FTSE 100 closed at 3,512, it still flags up a mouth-watering buying opportunity. See for yourself:
| ||27 Jul 11||27 Jul 10||27 Jul 09||28 Jul 08|
|FTSE 100 P/E||9.9||16.0||10.7||10.5|
What's going on?
Clearly, despite the falls of the last week or so, we're a long way away from 2009's low of 3512, when the market's P/E stood at just 7. Even so, a P/E of under 10 is 40% cheaper than last year, and isn't to be sniffed at. So why are shares so cheap?
The answer lies on the earnings side of the ratio. As Cliff D'Arcy wrote a few days ago, according to the latest Capita Registrars Dividend Monitor Report, dividends are running at a three-year high, up by 27% in the second quarter of 2010.
What's more, as Todd Wenning, lead analyst on the Fool's Dividend Edge investing service notes, "Those companies increasing dividends now outnumber those cutting dividends by a 6.5‑to‑1 margin ‑‑ a record high since Capita Registrars has been keeping score."
And Fool poster McEssex, a fund manager in real life, has noted that forecast dividends over the next twelve months are the highest that they have been for four years.
"The opportunity cost has never been lower," he writes. "Interest rates are 0.5% now, and were about 5% four years ago. On this data, the market has a prospective yield of 4%."
What to buy?
Today's P/E of just under 10 is of course the average of the whole FTSE 100. Individual shares can be much cheaper -- much, much cheaper in some cases. And these are FTSE 100 blue chips, remember, not AIM-listed minnows.
To my mind, fellow Fool writer David Holding did a pretty good job of unearthing the biggest bargains, identifying shares trading on a P/E of 7 or less.
That P/E of 7, you'll recall, was what the market dipped to on 3 March 2009 -- meaning that here were blue chips that you could still buy at fire-sale prices.
From David's list, I've pulled out my own four favourites, each of which I hold in my own portfolio.
Buy now, not later
Right now, investors are nervous. There's a lot of red ink around, and the combination of sovereign debt worries in Europe and budget deficits in America has propelled markets sharply downwards.
Which is exactly what helps to make shares a buy, of course.
In short, the time to buy is now, not when markets have recovered.
More from Malcolm Wheatley:
> Malcolm holds shares in AstraZeneca, Aviva, BAE Systems and BP. The Motley Fool holds shares in AstraZeneca and BAE Systems.