Well valued FTSE?
07/12/2004
I am looking at some FTSE data presently. The FTSE 100 has a p/e (price to earnings ratio) of 24.5 presently - greater than the Dow Jones Industrial Average. So is it overvalued? Well, the p/e is lower than anytime since 2000. It is also a third of what it was this time last year.
The reason the p/e has fallen while prices have risen is that earnings have risen even quicker. So is it undervalued then? My view is, as long as earnings don't drop we have reason for FTSE support.
In the short term I have said that a break of 4400 leads me to think that 4300 in July is likely. One reason for this is that as OPEC meets next week and oil production increases then BP's price is likely to fall. BP represents 10% of the FTSE 100.
On specific stocks, the momentum favours Northumbrian Water, even though the stock is somewhat overbought on some indicators. Remember, you should always look for a point where if the price goes there you know you are wrong. In this case I do not expect the price to fall below 134p.
Other plays with similar momentum strength (aside from any valuation benefits) and albeit a little overbought; Pillar Property (should not drop below 580p if I am right), Grainger Trust, Great Portland Estates, London Merchant Securities.
Value-Growth
On the value-growth radar - the searches I do which show me which stocks are growing based on turnover, earnings, and are well valued based on numerous measures including price to earnings growth - Findel is still on there but on the momentum basis is looking weak. Centrica is overbought but still moving in the right direction, Gooch and Housego is a new entry, although I can see it going down to 118p before rising, so it is a tough 50-50 call whether to get in now or wait. Remember, if you're unsure, then don't have a go!
By the way, for ADVFN users using the ADVFN bookstore there is a special offer: a free CDROM going over some key trades from the previous month. The CDROMs are free each month to purchasers of the 15 multimedia audio-visual CDROMs on 'How To Invest Better' from the ADVFN bookstore under 'Alpesh' in the search engine. (Although it says 10 on the site, I got carried away and added 5 more!) For everyone buying the full 15 set - just drop me a separate email and the publishers will arrange for signed copies of two of my latest books plus the free CDROMs every 4 weeks, for 12 months, showing audio-visually stock moves over the past month and how they should have been handled professionally.
Peackcock Group is still on the radar, although, as I mentioned several weeks ago it is overbought and now it is moving lower. It is not a sell for the longer term investor. For the short-term investor the exit has come and gone because of recent falls and for the medium term investor (who holds for a month or so) is the toughest call. As long as it is above 230p, I think the medium term investor is happy on a valuation, if not a price basis. Below 230p it looks too worrying to risk holding for the medium term.
Crazy Small Stock
On this we have QXL, Minorplanet, Petroceltic International.
All pure adrenalin momentum plays - not recommendations but simply 'crazy small stocks which may continue steep rises (or turn and burn) - but they almost certainly won't stand still.
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