Next stop 8,500 for the flying FTSE 100?

The FTSE 100 is having a really good run and setting record highs in April. But it still looks too cheap to me, as does this undervalued Footsie stock.

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Something unusual has happened in financial markets recently. The ‘old-fashioned and unloved’ FTSE 100 has started beating global counterparts.

Over one month, the Footsie has climbed by 3.3%, while hitting new highs. Indeed, it’s currently at an all-time peak of 8,199.95 points, just below the 8,200 mark.

Meanwhile, the US S&P 500 — the main driver of global stock-market returns for a decade — has dropped by 2.4% over one month. Thus, the FTSE has beaten its US cousin by 5.7 percentage points over 30 days — a rare result, trust me.

It’s been a long time coming

Since 2022, I’ve repeatedly and insistently argued that the UK index and its constituents were too cheap. For too long, the London stock market has traded at wide discounts to its global peers, both in historical and geographical terms.

It appears that this enduring trend may be coming to an end — though it’s too early to draw such conclusions just yet. Even so, there have been 10 or so takeover approaches for FTSE 100 and mid-cap FTSE 250 firms in 2024 to date.

This might suggest that some powerful investors are finally taking note of the long-standing attraction of UK stocks. In fact, a few days ago, I asked my Foolish colleagues, “Is it me, or is value investing starting to work again?”

FTSE 8,500 is in reach

Humans have a cognitive bias known as ‘anchoring’, whereby we fixate on particular prices or values for financial assets. In particular, we are drawn to round numbers (those ending with one or more zeroes).

When the FTSE 100 soared past 8,000 for the first time ever earlier this month, a slew of articles noting this came spewing out in news headlines. Of course, FTSE 8k is not really much different than 7,990 or 8,010. It’s just the way our brains are wired that make it more meaningful.

For the index to reach 8,500, it need rise only 3.7% from here. Given that I still view the UK market as too cheap, I’m hopeful it will surpass this milestone before 2024 is out.

One cheap Footsie stock

One FTSE 100 share I’m thinking about adding to my family portfolio is HSBC Holdings (LSE: HSBA). To me, shares in this global banking behemoth look undervalued, even after a 4.2% jump today on news its CEO is quitting.

HSBC shares currently trade at 696.3p, valuing the bank at £131.7bn and making it #3 in the Footsie by market value. They trade on a multiple of 7.6 times earnings, delivering a healthy earnings yield of 13.1%.

Furthermore, this stock offers a bumper dividend yield of 7% a year. This is covered almost 1.9 times by trailing earnings, for a decent margin of safety. That’s one one of the highest yields in the index, whose yearly cash yield is approaching 4%.

To be honest, I’d snap up these shares without delay, but for one snag. The majority of HSBC’s revenues and earnings come from China, Hong Kong, and the Far East. This region is dominated by the autocratic Chinese Communist Party, of which I’m no fan.

Nevertheless, this is one FTSE 100 stock I’m likely to own at some point, when the price is right!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Cliff D'Arcy has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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