Last week was another blockbuster for the FTSE 100 index of leading shares. The blue-chip benchmark hit a new all-time high. It has increased 13% over the past year.
Despite the strong performance of the index overall, some of the companies in it continue to look like potential bargains to me.
Associated British Foods
As an example, consider Associated British Foods (LSE: ABF). I added it to my portfolio recently.
I reckon the current valuation looks cheap. After a 16% price decline over the past year, the FTSE 100 member now trades on a price-to-earnings ratio of less than 10.
I do see risks. Sugar pricing this year is expected to be weak, eating into profits. The company’s Primark clothing business is operating in an environment where it is squeezed on one front by cheap rivals like Shein and on the other by an increasingly complex (and therefore costly) global supply chain.
But Primark on its own strikes me as a great business. Add to that other brands ABF owns like Twinings and Dorset Cereals and I reckon the profitable business looks like a bargain at its current price.
JD Sports
Another retail operator that has been feeling the heat is JD Sports (LSE: JD).
After a great few years of stock market performance, the going has got a lot tougher for JD Sports. The FTSE 100 retailer has seen its share price crash 33% over the past year.
Multiple profit warnings have shaken City confidence in management. Add to that the expense of an ambitious shop opening programme and a risk that weak consumer confidence could hurt spending on branded sportswear and the price fall makes some sense.
Still, the company has a proven formula and global reach, and is solidly profitable. It expects to deliver full-year profit before tax and adjusting items north of £900m.
Set against that, I reckon its £4bn market capitalisation is a bargain in plain sight.
How I think about the FTSE 100
What is going on?
How can individual FTSE 100 members be doing so poorly when the index itself has been going gangbusters?
It is like a cricket team or model railway club: overall it may be doing well, but individual members might be doing poorly. But for them, the overall performance would be even higher.
I could invest in a FTSE 100 tracker fund to try and benefit from the long-term potential I see for the index. Instead, though, I have been buying individual FTSE shares like ABF and JD Sports.
While their recent share price performance has been lacklustre to say the least, I remain upbeat about their long-term potential.
By pouncing now, at what I see as bargain basement valuations, I hope that my buy-and-hold philosophy of long-term investing means I could benefit from future price recovery.
