HSBC Holdings plc (LON:HSBA), Vodafone Group plc (LON:VOD) and Royal Dutch Shell Plc (LON:RDSA) will have a huge influence on how the FTSE 100 does in 2013.
The FTSE 100 is a market-weighted index. This means that not every constituent makes the same contribution to its performance. The value to the FTSE 100 of each share is determined by its own market capitalisation. This means that the FTSE 100's largest company (Shell) has 190 times as much influence on the level of the index as the smallest (Eurasian National Resources Company).
Here are my thoughts on the outlook for the shares of three FTSE 100 titans.
HSBC Holdings (LSE: HSBA) (NYSE: HBC.US), the UK's biggest bank, has proved far more resilient and less volatile than its listed peers Barclays, Royal Bank of Scotland and Lloyds Banking.
This strength has long been rewarded with a premium rating to the rest. The result is a huge market cap and a large FTSE 100 weighting. HSBC is 8.2% of the FTSE 100.
Despite this, HSBC shares are still cheap today. 2013 forecasts show an expected 11.0% increase in earnings per share (EPS) and a 11.1% dividend hike. Despite this, the shares trade on a 2013 price-to-earnings (P/E) ratio of just 11.1 times forecasts. The shares are expected to yield 4.4% this year.
Royal Dutch Shell
Due to a quirk of how it is incorporated, two classes of share in Royal Dutch Shell (LSE: RDSB) are in the FTSE 100.
Adding the two together gives a total FTSE 100 weighting for the company of 9.0%. Shell has nine times the effect on the FTSE 100's value than the average blue-chip share. A large amount of the FTSE's future success depends on Shell. Fortunately for tracker investors, Shell shares have plenty of potential to rise from here.
The company currently trades on just 8.3 times EPS forecasts for 2013, with an expected dividend yield of 5%.
At the height of the dotcom bubble at the turn of the century, Vodafone (LSE: VOD) (NASDAQ: VOD.US) made up more than 10% of the FTSE 100. Today it is 'just' 5.3%. That still makes Vodafone nearly four times as important to the index as its sector peer, BT.
I hold Vodafone shares because I think that they are significantly undervalued.
At today's price they trade on a 2013 P/E of 11.3 and an expected dividend yield of 5.8%. The average FTSE 100 share is on a P/E of 16.4 and pays a dividend of 3.2%.
Vodafone is a bargain behemoth.
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> David owns shares in Vodafone, Royal Bank of Scotland and Lloyds but none of the other companies mentioned. The Motley Fool has recommended shares in Vodafone.