With the FTSE 100 trading on a price to earnings (P/E) ratio of 15.2, it could be argued that it has the scope to expand over the medium term. Certainly, a number of its constituents are trading on much higher ratings and, while they may put off a number of die-hard value investors, those stocks could deliver stunning share price performance in 2015 and beyond.
With that in mind, here are the five most expensive shares in the FTSE 100, and why they could be worth buying right now.
International Consolidated Airlines
Shares in British Airways owner International Consolidated Airlines (LSE: IAG) trade on a P/E ratio of 32.3. That’s 113% higher than the FTSE 100’s valuation, and yet the company could see its share price move higher.
That’s because IAG is forecast to post stunning earnings growth over the next two years, with its bottom line set to rise by 52% in the current year, and by a further 22% next year. This means that in 2016 IAG’s profit could be as much as 85% higher than it was in 2014, and this means that its price to earnings growth (PEG) ratio stands at just 0.9. This indicates that it offers excellent growth prospects at a reasonable price.
With the price of oil falling heavily since the middle of last year (and dipping below $50 per barrel for the first time in almost six years), shares in Tullow Oil (LSE: TLW) have been hit hard. However, despite falling by 50% in the last six months, they still trade on a heady P/E ratio of 26.5, and many investors may feel that further falls are inevitable –especially if the price of oil continues its slide.
However, despite a lower oil price, Tullow is still expected to increase net profit by a whopping 68% next year as the business shifts resources towards production rather than exploration. As such, its PEG ratio of 0.4 shows that share price growth could be on offer, although its performance is likely to remain highly volatile in the short to medium term.
A major attraction of investing in Real Estate Investment Trusts (REITs) is the steady, enticing level of income they provide. However, Land Securities (LSE: LAND) has seen its share price rise to such an extent in recent years (78% in the last five years) that it now yields a rather disappointing 2.7%.
However, there could be more share price gains to come, with Land Securities set to benefit from the continued recovery of the UK economy, and particularly from the anticipated real terms growth in disposable incomes that is expected to take place this year. This could stimulate consumer spending and push investor sentiment, profitability and the share price of Land Securities higher.
The technology sector often attracts considerable investor interest and with it tend to come rich valuations. It’s no different for the UK’s most prominent technology company, ARM (LSE: ARM), with it currently trading on a P/E ratio of 34.4.
This, though, is a lower rating than has been seen in recent years, since doubts have emerged regarding ARM’s status as a high-growth company. In fact, a number of investors are now questioning whether smartphone growth will tail off and that ARM could become a more mature business as a result.
Whether this takes place or not, ARM remains a company with considerable potential, a relatively reliable track record and, due to a PEG ratio of 1.4, seems to also offer good value, too.
With profit having fallen over the last couple of years and its share price being 52% lower than three years ago, it’s been a tough period for Fresnillo (LSE: FRES). Still, its shares continue to trade on a very rich multiple of 31 and, looking ahead to its growth forecasts, they seem to be worth it.
That’s because Fresnillo is expected to increase its bottom line by 51% in the current year, followed by 34% next year. Part of the reason for this is its ultra-low cost base that, as the largest silver producer in the world, allows it to maintain relatively high levels of production while many of its rivals struggle to turn a profit.
As such, its bottom line looks set to benefit and, with a PEG ratio of just 0.6, investors in the company could benefit from a higher share price moving forward, too.
Despite their potential, none of the above stocks have made it on to a shortlist to be featured in a free and without obligation guide from The Motley Fool called 5 Shares You Can Retire On.
The companies in question could make a real difference to your portfolio returns and make 2015 and beyond an even more prosperous period for your investments.
Click here to find out all about them – it's free and without any obligation to do so.
Peter Stephens owns shares of Land Securities Group. The Motley Fool UK has recommended ARM Holdings and Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.