When I look at US stocks, I sometimes despair of the FTSE 100.
Our dear old Footsie is up 11.3% in the past five years. The period does include the pandemic and the 2020 stock market crash. So maybe that’s not too bad?
Well, the US went through exactly the same pains. But over there, the S&P 500 has gained 93.7% in the same period (at the time of writing).
Go west?
US investors have been trying to woo UK companies to cross the Atlantic and list in New York instead of London.
In June this year, Emma Walmsley, CEO of UK pharmaceuticals giant GSK (LSE: GSK) felt the need to assure the market that the company had no intention of giving up its UK listing.
She pointed out that GSK spends more than £1bn on research and development per year in this country, and employs 11,000 people. That’s even though only a small amount of its earnings come from UK sales.
Valuations
When I look at the GSK valuation, I have some sympathy for shareholders who might like to see it abandon the UK stock market.
We’re looking at a forecast price-to-earnings (P/E) ratio of 12, less than the FTSE 100 long-term average. And with earnings growth expected for the next few years, that could drop to under nine based on 2026 forecasts.
Compare that with Eli Lilly, for example, on the US stock market. That’s on a forward P/E of 57 for this year. Again, there’s earnings growth on the cards. But it would still leave the P/E at 32 for 2026.
Eli Lilly shares are worth around four to five times the value of GSK shares, on that basis.
Britain’s AstraZeneca, which still seems to be enjoying some of its Covid vaccine boost, has P/E multiples somewhere in between, in the twenties.
Dividends too
Still, if US pharma stocks are valued a lot higher than UK ones, at least the dividend situation is in our favour.
Eli Lilly is on a dividend yield of just 0.6% according to forecasts for this year. GSK, meanwhile, looks set to reward shareholders with a far juicier 3.9%. So there’s a much lower stock valuation, but 6.5 times the annual cash reward.
In fact, that reflects the two indexes as a whole.
Right now, the S&P 500 is on an average P/E of about 28 to 29 (depending on who we ask). And the average dividend yield is about 1.25%.
The FTSE 100 is valued at about half the P/E, around 14 (again depending on the source, and there’s some variation in estimates). But the forecast dividend yield is up at 3.5%.
Growth vs income
Whatever the reason for the differences, I don’t think there’s a clear case for either the FTSE 100 or the S&P 500 being generally better for investors.
Maybe the S&P is better for growth investors and the Footsie for income investors?
It has to be down to personal choice. But when making that choice, do beware that past performance is not a guarantee of future performance.
