The Motley Fool

Is the FTSE 100 a bargain right now?

Image source: Getty Images

The FTSE 100 has rallied substantially recently. In the last month alone, the index has surged by around 10% in fact. 

One key reason for the rally could be the positive vaccine candidate news release by Pfizer and ModernaAccording to interim data, both companies’ vaccine candidates are around 95% effective. With such a high efficacy rate, there is more hope that the world can return to normal faster if the vaccines are approved. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Given the rally, is the leading British index still a bargain? Here’s what I think. 

Long-term upside?

Although the future is uncertain, I think the FTSE 100 is a bargain at current prices in the long run. 

In the long run, I think the Footsie has a lot of potential. This is thanks particularly to its exposure to productivity improvements from technology advancement. Specifically, technologies such as AI and 5G could really unlock a lot of economic activity. According to estimates made by ABIresearch, the direct/indirect/combined output of 5G and AI to the global economy could reach as much as $17.9tn annually in 2035. At that time, the research firm estimates almost two-thirds of the benefit could be productivity related.

Given that many FTSE 100 components are global multinationals, I also think the Footsie has a long earnings growth runaway as emerging markets incomes normalize. With the average GDP per capita of £8,500 being relatively low versus that of the West, I think there is potential for a faster rate of growth in other parts of the world, and many FTSE 100  companies that operate in those areas will benefit. 

If the market takes the long view, I don’t see why it can’t go higher. 

Short-term uncertainty

Although I think the FTSE 100 is a bargain in the long term, I don’t really know what’s going to happen in a month or a year from now. The near term is uncertain as any number of things can happen that could send the index lower. Any number of things could also send the index higher. 

Given everything that has occurred, I think the index has a higher probability of rising simply because of the potential vaccines. That,  and the possibility of the world returning closer to normal next year. 

In terms of what might send shares one direction or the other, I’d follow the next earnings reports and management outlooks. If the earnings reports and outlooks are better than expected, I think the Footsie could potentially continue the rally. 

In terms of expectations, analysts expect FTSE 100 earnings to rise substantially next year. According to a report compiled by AJ Bell using data a few months ago, analysts expect FTSE 100 adjusted net profit to rise by around 47% next year. In terms of whether that magnitude of increase is achievable, I think it’s definitely possible. 

There is a lot of fiscal and monetary stimulus going around. Due to the pandemic, 2020 earnings are temporarily depressed in my view. 

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.