‘Sell in May and don’t come back until St. Ledger’s day’ is a well-known saying in investing circles. Indeed, data from recent decades seems to back it up: the stock market rarely embarks on a sustained summer rally and usually falls between May and September. This has been the case in 2014, with the FTSE 100 falling by 1% over the last three months.
This means that the index is flat for the year so far, although it still appears to offer good value for money when compared to its American cousin, the S&P 500. While it trades on a price to earnings (P/E) ratio of 18.5, our FTSE 100 has a P/E of just 13.4. So, while many commentators have been getting excited about our ‘summer dip’ in terms of it being the beginning of a prolonged market correction, it could turn out to be little more than a mild, mundane and entirely predictable summer pullback.
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Great Value
As a result of falls in the last few months, many top-notch FTSE 100 stocks are now even better value than they were in May. Two fine examples are AstraZeneca (LSE: AZN) and Vodafone (LSE: VOD). The former has fallen by 1.5% during the last three months, while the latter is down 7% over the same time period. This means that both companies now offer above-average yields of 4% and 5.7% respectively, which highlights their attractive valuations at current price levels.
Looking Ahead
However, there is a lot more to AstraZeneca and Vodafone that attractive prices. For example, AstraZeneca continues to make huge improvements to its drug pipeline and is gradually overcoming a sizeable patent cliff that has caused the company’s top and bottom lines to fall in recent years. Similarly, Vodafone is pursuing a sound strategy of buying undervalued assets in Europe. Although it may take many years for this strategy to come good, it looks set to put Vodafone on a long term path to strong growth and stability, which is great news for shareholders.
Certainly, the ‘summer dip’ may not yet be over. The FTSE 100, including AstraZeneca and Vodafone, may fall further. However, they seem to offer top notch value for money at present and appear to have bright futures. Indeed, with the UK economy continuing to pick up pace, and with interest rates looking less likely to move higher as a result of lower than expected inflation, a purple patch could be just around the corner. As a result, it could be worth coming back a little before St. Ledger’s day!
