Seven ways to ride the FTSE’s run-up

By Author Charlie Gibson Apr 11, 2006

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The FTSE 100 has hit 6,000 for the first time in five years, and there are plenty of reasons to think it will soon scale its all-time high of 6,930.2 – set in December 1999 – and even reach 7,000, says Shares magazine.

Historically and relative to its international peers, the UK market is still cheap. It’s trading on 12-13 times projected earnings (normally, it trades at around 15-20 times), compared to 16-24 times for US and European equity markets.

In addition, a flurry of corporate activity, healthy cash flows, a stable interest-rate environment, a buoyant global economy, and strong commodity prices mean the outlook is good.

Most banks and stockbrokers began 2006 forecasting a year-end figure for the FTSE 100 in the 6,000-6,100 range, against 2005’s final 5619, and the consensus for reaching 7,000 seems to be in late 2007 or 2008. But technical analysis (see page 46) suggests it could come “as early as November this year”.

To take advantage of the momentum, Shares recommends that investors buy a bid candidate or two, such as Scottish Power (SPW, 578p) or Lloyds TSB (LLOY, 552p); a couple of interest-rate-sensitive stocks that underperformed in 2005, such as Persimmon (PSN, £13.23); and a commodity play, such as Xstrata (XTA, £19.35) “for good earnings momentum”.

Shares also likes BP (BP, 675p) for its share buyback scheme, DSG (DSG, 185p) as a consumer “rebound” play, and Sainsbury (SBRY, 334p) as a recovery story.

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Published in Tips & advice | More articles by Charlie Gibson

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