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FTSE 3,287: Time To Buy

By Maynard Paton (TMFMayn)
March 13, 2003

This market is a buy.

Last night, the FTSE 100 closed at 3,287, the lowest it's been since June 1995. At this level, the dividend income from the blue chip index is 4.23%, higher than the 4.06% available from 10-year gilts. The last time the market yielded more than government bonds was during the 1973/4 bear market, which in hindsight proved a great long-term buying opportunity.

In amongst the FTSE 100, numerous shares look extremely attractive for the long haul. Take GlaxoSmithKline (LSE: GSK)(NYSE: GSK). At yesterday's 1,000p close, the pharmaceutical giant trades on a forward price to earnings (P/E) ratio of 12 and yields 4%. Given the long-term growth prospects of the industry, GSK is an absolute bargain.

Or how about oil? BP (LSE: BP.)(NYSE: BP) at 371p and Shell (LSE: SHEL)(NYSE: SC) at 333p both trade on prospective P/Es of around 12 and offer dividend income of over 4%. These two reliable giants have not been this cheap for a decade. They too are giveaways. Read more.

What about banks? Some are having (or rumoured to be having) a few problems, but recent results showed many making steady progress. All with single-digit P/Es, the pick of the bunch are Barclays (LSE: BARC)(NYSE: BCS) (311p, yielding a historic 5.9%), HBOS (LSE: HBOS) (563p, 5.2%), Alliance & Leicester (LSE: AL.) (719p, 5.6%), Northern Rock (605p, 3.3%) and Bradford & Bingley (LSE: BB.) (267p, 5.5%).

Elsewhere, plenty of steady, stable and proven firms are boasting ludicrously cheap ratings.

At 578p, British American Tobacco (LSE: BATS) offers a juicy 6.1% yield, while Tesco (LSE: TSCO), at 163p and forecast to grow profits around 12% this year, stands on a P/E of 12 and yields 3.8%.

Meanwhile, Cadbury Schweppes (LSE: CBRY)(NYSE: CSG) at 301p languishes on a P/E of 10 and provides a 4% yield. Allied Domecq (LSE: ALLD) at 261p rests on a P/E of 8 and offers a 5% income. At 156p, Rentokil Initial (LSE: RTO) also suffers from a P/E of below 10 while supplying a near 4% payout. And Granada (LSE: GAA) at 45.5p has a P/E of 11 and a 4%-plus yield.

What next? Remember capitalism and stock markets have seen many turbulent times before, but recovered and prospered thereafter every time. So scrape together your savings, summon up the courage and pile into the market. FTSE 3,287 is a fantastic long-term buying opportunity.

The author owns shares in GlaxoSmithKline.