The FTSE 100 index of leading shares hit an all-time high last year. Over the past five years though, it has grown just 8%.
In fairness, those have been tumultuous years and the index contains a lot of mature businesses unassociated with racy growth. Nonetheless, while growth is growth (and many FTSE 100 firms are handy dividend payers to boot), that performance is hardly spectacular.
Some FTSE 100 shares look particularly cheap right now. Rather than trying to time the market and wait to buy, I would happily use spare cash to swoop on potential bargains today. At some point I expect there will be another stock market rally and I would like to have my ducks in a row first.
The perils of market timing
With the economy looking lacklustre, there is an argument that there is no rush to buy shares. After all, they could yet get cheaper. The FTSE 100 has fallen since last year’s highpoint and may go down further.
But market timing is not an approach I bother with, for the simple reason that nobody knows what will happen next in the stock market. A share that has been in long-term decline can suddenly bounce back, leaving a longstanding cheap buying opportunity in the dust.
Instead, I look at a share and ask whether or not I think its future commercial prospects are properly reflected in its current share price. If it sells for well below what I think it is worth, a share could turn out to be a bargain in the long term even if its short-term price movement continues downwards.
Unloved high-yield FTSE 100 share
As an example, consider financial services provider Phoenix (LSE: PHNX). It has fallen 19% over the past year. Over five years, the share has lost 28% of its value.
Yet I think Phoenix has a lot going for it. It has a large customer base and deep financial markets expertise. Admittedly, it has made a loss for the past couple of years, but swings in asset prices can make it hard to value financial services shares by looking at earnings alone.
Last year saw new business net fund flows of around £7bn, a much stronger performance than the year before. The firm has said it is “on track to deliver positive… net fund flows from 2024, for the first time in its history”.
It has been paying down debt to improve its balance sheet. Although the final results for last year are not yet confirmed, the company expects to have generated £1.3bn-£1.4bn of cash. That can support juicy shareholder payouts.
Phoenix has grown its dividend annually over the past few years. At the current share price, the dividend yield on offer here is 10.4%.
Buying to hold
Things might not turn out the way I hope, of course. For example, one risk to Phoenix’s share price is rocky stock markets continuing to hurt the FTSE 100 firm’s earnings if customers withdraw funds.
To me though, the shares look cheap. If I had spare cash to invest today I would not wait but would buy the shares today with an eye to holding them for the long run.
