Investing can be a confusing business. Take the London stock market for example. A lot of people talk about it being “cheap” or ignored compared to other markets.
Yet the FTSE 100, up 16% in a year and 37% across five years, has already hit an all-time high this year.
It has since fallen back slightly, but what is going on?
One market, many shares
Talking about the stock market in general can be useful in some ways. For example, it can be seen as something of a barometer for how the wider economy is performing (though at times that link is actually quite weak).
But the thing is, like most investors, I do not ‘buy the market’. Even investing in a FTSE 100 tracker fund already means getting exposure to just a fraction of the shares listed on the London market, albeit in terms of size they are substantial.
I do not even do that. Rather, I prefer to choose a diversified selection of individual shares to hold in my portfolio. So I may be able to find bargains at any given moment regardless of whether the wider stock market is soaring, crashing, or moving sideways.
There’s value to be found in today’s market
In fact, while the FTSE 100 has been riding high of late, I think a number of leading British shares continue to look relatively cheap given the quality of their business.
For example, one FTSE 100 share I recently added to my portfolio is Twinings and Primark owner Associated British Foods (LSE: ABF).
The company is trading on a price-to-earnings ratio of under 10. That looks fairly cheap to me.
Why is it valued that way? Well, there are risks that could see earnings fall – quite a few, in fact. Primark is facing heavy competition from the likes of Shein and Temu. And on the food processing side of the business, sugar pricing this year could well be weak, while cost inflation remains a threat for the sector.
I’ve been buying!
Still, Associated British Foods is a profitable and well-proven business. It has a strong collection of brands and I expect customer demand to stay resilient.
From cheap jeans to teabags and sugar to agricultural products, it operates in a number of areas that can see the tills ringing even in a weak economy. Its premium brands give the company pricing power. That can help it earn profits that, in turn, enable it to fund dividends. At the moment, the yield is 3.4%, not far off the FTSE 100 average.
It may look like a rather unglamorous business. That could help explain why some stock market investors are not very excited by it.
However, that does not bother me. I am looking for what I reckon are solid businesses with long-term potential that currently sell at an attractive share price. I snapped up Associated British Foods shares precisely because I think it fits that bill.
This post was originally published on Motley Fool
