Well, that is another record broken. As has already happened multiple times so far this year, the FTSE 100 index of leading British shares hit a new all-time high (during the trading session, not at its close) over the past week.
Could that signal that things are getting expensive – or might there still be value in the FTSE 100?
Not looking wildly expensive
The price-to-earnings (P/E) ratio of the index overall is around 16.
To me, that does not scream of an obvious bargain. By the same measure, though, the index does not necessary look that expensive.
Yes, the P/E ratio is above where it has spent recent years. But in absolute terms, 16 feels justifiable to me for a collection of the nation’s largest businesses.
Things could get better
I also see some possible drivers that could potentially help push the FTSE 100 even higher from here.
There has been considerable economic uncertainty recently both in the UK and more widely, for reasons such as global tariff disputes and shifting tax policies in the UK. If the economy clearly gets better, then I think that could help the FTSE 100.
There has been some evidence of that lately – the latest quarterly GDP figures from the US showed decent economic growth, for example. But what remains to be seen is whether the economy is on a sustainably stronger footing. For example, those GDP figures may have been inflated by companies and consumers front-loading purchases to try to avoid planned tariff increases.
I reckon there are some real bargains
On that basis, although I can see why the FTSE 100 may push higher, I also can picture a situation where we see it lose value.
Stepping aside from the broad index, though, and looking at some specific shares within it, I think there are some real potential bargains lurking in plain sight.
Take Reckitt (LSE: RKT) as an example. The FTSE 100 consumer goods giant has already moved up 16% so far this year. The City responded warmly to recent news that the Finish owner is streamlining its portfolio to focus on its biggest brands. That is similar to what rivals have been doing over the past few years.
But the Reckitt share price is still 27% below where it was five years ago. That was during the first year of the pandemic, when demand for hygiene products like Reckitt’s Lysol had surged.
In itself I think that points to the fact that the company has carefully chosen what product categories it can compete in successfully with its iconic brands. The latest strategic moves continue that approach and I think over time they could help add value to the firm.
There are still challenges that could hurt profitability. One is ongoing legal disputes arising from a disastrous acquisition in Reckitt’s nutrition business a few years ago.
But on balance I see the company as a strong business with excellent long-term potential. At its current share price, I think it is a FTSE 100 share investors should consider.
