Over the last year, the FTSE 100 index has outperformed a lot of other indices.
That outperformance of the FTSE 100 may well continue in the current market. The UK stock market is deeply out of fashion. A combination of negative sentiment and outperformance may well mean the valuation has become too cheap for the FTSE 100.
CRH just announced it wants to leave the London Stock Exchange and try its luck on the New York Stock Exchange instead.
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If CRH gets its primary stock exchange listing in the US, it will no longer be included in the FTSE 100 index.
A lot of CRH’s earnings come from America. It is also the biggest building materials supplier in the United States. When the company announced its earnings and the listing plans the stock jumped by 10%. I believe management probably hopes for CRH to trade at a higher valuation with a stock exchange listing in New York.
Ferguson already changed its primary listing to the US. Flutter Entertainment and WANdisco have also announce they are eying a primary listing on the other side of the ocean.
Do US primary listings increase the valuation?
It is hard to tell objectively if changing the listing does any good for the share price valuation. Only when 10 to 20 companies have actually swapped London for New York can that be measured more sensibly.
If, however, it does turn out that the valuations can be raised this way, management of FTSE 100 companies could have a fiduciary duty to look into this to their shareholders.
One Footsie firm for which this would make a lot of sense as well is Ashtead Group (LSE:AHT).
Ashtead also has a lot of its earnings in the US. The company has, however, just pledged its loyalty to London. A primary listing for Ashtead in America, though, could be a future catalyst for the stock.
Ashtead had good third-quarter earnings and raised its full-year guidance. The stock trades only at 19 times earnings and has a modest dividend yield of just over 1%.
Considering there is only one quarter left in Ashtead’s book year, soon investors will start looking at next year’s price-to-earnings (P/E) ratio. The forward P/E for Ashtead is only 16. That valuation is becoming similar to the valuation of the FTSE 100 .
What to buy this ISA season: the FTSE 100 index or Ashtead?
Clearly, the FTSE 100 is more diversified than a single stock like Ashtead. The former is therefore safer and it also has a higher dividend yield. So more ‘jam today’ for the FTSE 100 index.
Growth, however, is a lot higher for Ashtead. The company has easily managed double-digit growth this year and in the past. If growth continues, Ashtead could offer more ‘jam tomorrow’.
So I will add to my Ashtead position this ISA season. Its high growth at a reasonable price prospect is simply too tempting to ignore…
