On 30 August, the FTSE 100 broke the 8,400 barrier briefly to come agonisingly close to its all-time high of 8,475.
The rise has been largely due to the prospect of upcoming cuts to interest rates. With cheaper borrowing comes more avenues for growth. And as rates (hopefully) fall over the next few years, we will (hopefully) see the Footsie climb and climb, perhaps reaching that magical 10,000 mark sooner rather than later.
If and when the Footsie does hit the five-figure mark, many of its constituent companies could look like very good investments indeed. So let’s look at four key players that I’m considering buying next time I have spare cash.
Big money
As the FTSE 100 is a weighted index, we’ll need to look at the bigger firms first. And when it comes to big companies, Shell and BP won’t be far from people’s lips. Oil is big business, that’s no shock, but most people still underestimate how huge these companies are.
The median revenue of a Footsie firm is $7bn. Quite a lot of money, isn’t it? Well, not really.
At least not when you compare it to BP’s topline of $202bn in the last year and Shell’s of $293bn. The two energy companies drive incredible amounts of money and that gives them a lot of impact on FTSE 100 performance.
Huge sales don’t guarantee growth of course. For these oil majors to grow depends on a few other factors. The oil price is an obvious one and worsening geopolitical tensions will likely see that rise.
Another issue is that of net zero obligations. The CEOs of both firms have made statements in the last year about focusing on pragmatism rather than idealism. ‘We’re going to need oil for a while yet’, is the general message. It’s a contentious issue, but I see no reason for oil not to grow in the years ahead.
Another beast of a Footsie firm is AstraZeneca (LSE: AZN). The pharmaceutical company is currently the largest firm on the index by market value, even larger than Shell, despite posting a fraction of the oil firm’s revenue or income.
Unlike some of its fellow Footsie stocks, AstraZeneca is primed for growth and has a cornucopia of new drugs and treatments in the pipeline. This promising future doesn’t come cheap, with the stock trading at a dizzying 40 times earnings.
One to watch
Can it justify a valuation that is roughly on par with AI-hyped Nvidia? We shall see. But with the pharma giant making up a 13% weighting of the FTSE 100, it will probably play a very big role in whether we see the index break 10,000 any time soon.
Speaking of Nvidia, big tech and the AI impact have pushed US stocks near record highs too. While the FTSE 100 isn’t home to an Nvidia or an Alphabet, there is place for companies that might use AI on a smaller scale.
One of those is Relx which offers products to doctors and lawyers to help them make sense of dense, inscrutable information. The firm has been growing so much that it’s overtaken Diageo and British American Tobacco and is now the eighth-largest firm by market value. Another one to watch, if you ask me.
This post was originally published on Motley Fool
