These eight FTSE 100 firms are going cheap.
Take a look at the performance of the FTSE 250 index over the last ten years, and one thing is immediately clear: Britain's mid-caps have soared in price.
And, as I've written before, it's precisely because of this strong performance that I hold a decent chunk of my own portfolio in a low-cost FTSE 250 index tracker from HSBC (LSE: HSBA).
Yet the flipside of that logic isn't always appreciated, says Fidelity's amiable James Griffin, manager of the company's Fidelity MoneyBuilder Growth Fund.
"As the FTSE 100 has under-performed the FTSE 250 for over a decade, many larger companies are now at very appealing valuations," he notes. What's more, he adds, a select few are truly global champions, with strong brands and rock solid balance sheets.
"In the bull market years a common criticism of large companies was that 'elephants don't gallop'," he says. "A large company supposedly had more limited room for growth compared with more nimble, smaller companies -- and as a result, many of these larger companies have de-rated over the last decade."
Consider, for instance, that the FTSE 100 is virtually where it was in 1998. Or that the share price of GlaxoSmithKline (LSE: GSK) is the same as it was in 1997. Or that the FTSE 100 is trading on a P/E of 10 or so, just a third of its level in early 2000.
As a result, says Mr Griffin, the FTSE 100 is stuffed with bargains -- some of them global champions, with strong global franchises developed over many years.
"Post-2008, the world has changed," said Mr Griffin, when I caught up with him earlier today. "It's changed in favour of companies with strong balance sheets -- which confers an advantage that bigger companies haven't always been able to exploit in the past."
In the world of M&A, for instance, these days it's the playground bullies with the strong balance sheets that win -- whereas in earlier times, they might have been outbid by niche private equity firms.
FTSE 250 companies, in contrast, lack the brawn and financial muscle of the global giants in the FTSE 100: built for speed, they're easily buffeted by adverse economic headwinds.
Size isn't everything
Even so, bigger isn't automatically better, stresses Mr Griffin. "Not every big company is a buy," he asserts. Despite its strong balance sheet, for instance, AstraZeneca (LSE: AZN) -- where concerns over its pipeline of new drugs are an issue -- is a business that he wouldn't touch.
And nor is bigger automatically cheaper, he adds, pointing to the fact that the valuations of tobacco companies such as British American Tobacco (LSE: BATS) are now at significant premiums to historical levels.
So which global champions does he like?
Mr Griffin has no hesitation in pointing to eight FTSE 100 stalwarts that he thinks are worth taking a long, hard look at.
I've listed them below, together with their prospective P/Es and yesterday's closing price.
Two, I hold myself. A couple of others are on the watch list. Yet others -- such as Johnson Matthey and WPP -- I've barely considered. Let us know what you think in the box below.
> Here's your free Essential Investor Kit. Over the next few weeks, you'll get share ideas, a sector report and much, much more. Don't miss out!
> Malcolm holds shares in Rolls-Royce, AstraZeneca, and GlaxoSmithKline. He also holds HSBC's FTSE 250 index tracker. The Motley Fool owns AstraZeneca and GlaxoSmithKline.