With a third of 2024 already gone, the UK’s FTSE 100 is looking good. It has made a number of record intra-day and closing highs this year. Now the index is 6.2% ahead since 29 December 2023.
However, London’s main market index is slightly trailing its US counterpart, the S&P 500 index, which is up 7.2% since end-2023.
Despite this positive start, I still view the Footsie as undervalued, both in historical and geographical terms. For example, here are two FTSE 100 shares my wife and I own. We’re holding onto them for this month and beyond.
1. For a bidding war: Anglo American
Anglo American (LSE: AAL) is a leading mining company, operating copper, iron-ore, platinum and diamond mines in various countries.
After reporting weaker production late last year, Anglo’s shares crashed to a 52-week low of 1,630p on 8 December. That said, they’re up 12.9% over one year, plus they’ve jumped by 42.4% over five years, excluding cash dividends.
As I write on 3 May, Anglo shares stand at 2,683.5p, valuing this group at £36bn. That’s a whopping 64.6% above December’s low. This surge was boosted by news of a huge takeover approach from the world’s biggest miner, BHP, alias ‘The Big Australian’.
Of course, I’m delighted by this soaring price, but there could be more to come. Perhaps BHP will return with a higher bid, or other global miners will join this auction? For me, that’s good enough reason to hold this stock and await developments.
Of course, I could be wrong — BHP and other miners may decide that the current price tag for Anglo is already too high. And if no firm bids emerge, then the stock will likely plunge. But that’s a risk I’m willing to take. And of course, I don’t just hold stocks for their chance of being taken over.
2. For a comeback: Diageo
Diageo (LSE: DGE) is one of the world’s biggest producers of alcoholic drinks. Its packed cupboard of booze brands includes Smirnoff vodka, Gordon’s gin, Johnnie Walker whisky, Guinness stout and Baileys Irish cream.
Diageo is one of the FTSE 100’s biggest players, currently ranked at #9 by market value. However, its shares have had a rough ride in recent years, falling by 25.3% over one year and 15.1% over five (excluding dividends).
As I write, it trades at 2,754.26p, valuing the group at £61.2bn. In other words, Diageo’s market value has crashed by over £20bn in 12 months. Currently, its shares trade just 2.9% above their 52-week low of 2,676p, hit on 23 January.
It’s been dragged down by falling sales in the Caribbean and Latin America. Those markets account for a tenth of its global revenues. Also, under-25s are drinking less than previous generations. That’s partly for health reasons and, I think, due to the patchwork legalisation of cannabis.
Diageo’s falling share price has boosted the stock’s dividend yield to 3% a year — pretty high, in historical terms. This cash yield, together with the potential for a turnaround, is why my wife and I bought the stock in December.
Then again, Diageo’s sales could suffer more setbacks, further reducing revenues, profits and cash flow. However, we’ve no intention at selling at anywhere near current price levels, as we’re on board for the long run!
