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The FTSE 100 blue-chip index enjoyed a start to 2025, hitting an all-time high of just over 8,445 on 15 May before retreating. Last week was bumpy as investors fretted over US interest rates. The index threatened to dip below 8,000 again before rallying.
So it’s slightly unfair to take a snapshot today and draw serious judgements. When AJ Bell looked on 17 December it was up 7% on the year but now that’s down to 4.7%. As we can’t repeat enough at The Motley Fool, short-term movements don’t count. It’s the long run that matters.
UK blue-chips look undervalued to me
The FTSE 100 doesn’t just deliver capital growth when share prices rise. Its stocks are supplemented by dividends, share buybacks and takeovers. AJ Bell investment director Russ Mould says after taking these into account the effect is to “confound the prevailing bearish tone of commentary on UK equities”.
He added: “Total returns from the UK stock market in 2024 handily beat cash, bonds and inflation, but the poor comparisons with the USA remain the stick with which the FTSE 100 is constantly beaten.”
Ah yes, the US. The S&P 500 has grown 25% year to date, smashing every index on earth. But it can’t compete with the FTSE 100 for dividends as its average yield of 1.22% trails the 3.6% of the FTSE 100. This matters over time.
On December 10, AJ Bell found that after factoring in dividends, buybacks and takeovers, the FTSE 100 has enjoyed its best year since 2021 with an 11.4% total return.
Using its figures, an investor who put in £10,000 at the start of January would have £11,140 today. That’s £1,140 more than they started with.
I buy individual stocks rather than track the index. So far this year, 18 stocks have generated a total return in excess of 30% and approximately half of the index produced a double-digit return.
British Airways owner International Airlines Consolidated Group (LSE: IAG) is the biggest winner. Its shares are up 95% year to date.
I spotted its potential, too, writing on 29 November 2023, that the IAG share price looked “ridiculously cheap, trading at just 3.8 times forecast 2023 earnings”. Sadly, I didn’t put my money where my mouth was.
The share price may climb higher in 2025
IAG is shaking off the grim legacy of the pandemic, which left it nursing debts of €11.6bn as fleets were grounded.
Q3 results on 7 November showed profits had jumped 43.5% to €1.75bn, with flights at 95.6% capacity. The board resumed dividends too.
Like every airline, it remains vulnerable to a host of threats. Rising oil prices can push up costs, wars can close routes and natural disasters can cause mayhem.
Yet I think the shares look fit to fly in 2025 too, given the continuing low valuation of just 7.2 times trailing earnings.
This is a pattern across the FTSE 100. UK shares are roughly half the price of US ones. And there’s more income to come. As Russ Mould points out: “Analysts think the FTSE 100’s aggregate pre-tax income in 2025 will exceed 2018’s pre-Covid peak by £78bn or some 46%.”
I’ll be directing my investment efforts at the FTSE 100 next year. I feel like I’ve missed my chance with IAG but now I’m hunting around for stocks than can emulate its success in 2025 and beyond.
