Global giants go on sale.
Today, the FTSE 100 (UKX) as a whole trades on a price-to-earnings (P/E) ratio of 11.2 -- not expensive, but not exactly screamingly cheap, either.
Run your eyes down a list of the top 20 shares making up the index, and it's certainly possible to spot shares on P/Es much higher than that average. Diageo (LSE: DGE), for instance, trades on a trailing 12-month P/E of over 25. British American Tobacco (LSE: BATS), to choose another example, has a P/E of 21.
But intriguingly, three of the FTSE's very largest shares are on a P/E that's much lower. Much, much lower -- and lower than the FTSE's average.
Size is everything
In outline terms, it's not difficult to guess why. "Elephants don't gallop," famously wrote growth investor Jim Slater. And to be sure, shares don't come much more elephantine than the upper reaches of the FTSE 100 -- especially the top 10.
But look more closely, and these shares are trading on bargain P/Es that are also due to other factors. Simply put, these shares are relatively unloved, with P/Es that are both below their industry averages, as well as below their own five-year highs.
But is that lack of love justified? For the most part, I think not. Especially when -- in terms of market capitalisation -- two of the three shares in question make up the two single largest companies in the index. Indeed, as we'll see in a moment, ranked by revenues, two of these three are also in the top five of the Fortune Global 500.
So unloved, maybe. Minnows, definitely not. And about to go 'pop'? Most certainly not. The three shares in question? Let's take a look.
|Company||% of FTSE 100||Today's price||Forecast P/E||Historic P/E|
|Royal Dutch Shell (LSE: RDSB)||9.8%||2,336p||8.7||8.4|
|HSBC (LSE: HSBA)||6.9%||566p||9.7||9.9|
|BP (LSE: BP)||5.7%||450p||7.6||7.8|
- Royal Dutch Shell ranks first in the Fortune Global 500 for revenues -- in other words, businesses don't come any bigger. It operates in 80 countries around the world, owns over 30 refineries and chemical plants, has 43,000 retail filling stations, and produces 3.2 million barrels of gas and crude oil each day.
- HSBC isn't quite the world's largest bank by revenues -- ING, BNP Paribas and JP Morgan Chase are bigger -- but even so, it serves around 60 million customers worldwide through 6,900 branches and offices in 84 countries. That said, it wins out on one ranking: HSBC has the distinction of having paid out more in dividends than any bank in the world over the past five years.
- BP is another global giant, being ranked the world's fourth-largest company in terms of revenues according to the Fortune Global 500. Active in 30 countries worldwide, it operates 16 refineries and 21,800 retail sites, and owns country- or regional-specific brands such as Aral, Arco and Castrol. Still defined by its problems in Russia and the Gulf of Mexico, BP has the muscle to shoulder aside such difficulties, and go on delivering shareholder returns for decades.
Slightly further down both the FTSE 100 and the Fortune Global 500 is another British business, also with a global footprint, that is also trading on a beaten-down P/E. So much so, that it's caught the eye of Warren Buffett, who only rarely makes forays outside of the United States.
What's more, Buffett now owns over 5% of this share -- and has been taking advantage of market weakness to top up more. This free special report from The Motley Fool -- "The One UK Share Warren Buffett Loves" -- highlights the compelling investing thesis that Buffett has seen. Why not download a copy? It's free, and can be in your inbox in seconds.
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> Malcolm owns shares in BP, but not in any other companies mentioned here.