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Will GlaxoSmithKline, HSBC Holdings, and Vodafone Group Push the FTSE 100 to Record Highs?

By David O’Hara - Apr 12, 2013 at 10:46PM

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Together, GlaxoSmithKline, HSBC Holdings, and Vodafone Group make up more than 18% of the FTSE 100. Their fortunes will have a great impact on the index.

LONDON -- Shares of pharmaceutical giant GlaxoSmithKline (GSK 2.45%) have performed well in the last month. While the FTSE 100 is down 1.5%, Glaxo is up 4.5%. Since the beginning of the year, Glaxo shares are up 16.3%. That's a stonking performance for such a large company.

According to analyst forecasts, the shares are expected to pay 77.6 pence of dividends for the year. At today's price, that equates to a yield of 5%.

The average FTSE 100 company trades on a price-to-earnings (P/E) ratio around 15.2 times forecast earnings. Sitting on a P/E today of 13.3, Glaxo is trading at a significant discount. That seems unfair for such a successful and reliable company.

At current prices, HSBC (HSBA -0.57%) (HSBC 0.23%) makes up 7.8% of the FTSE 100. It shares have the most influence on the FTSE 100.

The banking giant currently trades on just 10.7 times consensus forecasts for 2013. Considering the resilience that HSBC has demonstrated during an industry crisis, that's pretty mean.

There is no escaping the fact that bank shares remain very unpopular. However, I am beginning to see signs that politicians are tiring of banker bashing. The media is also starting to move on, as writers run out of new angles on old stories.

HSBC is forecast to grow earnings next year, putting the shares on a 2014 P/E of 9.4, with a prospective yield of 5.3%.

Recent speculation over the future of Vodafone's (VOD 1.90%) (VOD 2.67%) U.S. mobile investment in Verizon Wireless has pushed the shares to their highest level since 2007.

Making up almost 6% of the FTSE 100 by itself, the market's recent setback would have been more painful for index investors without the telecom giant's recent rally.

While Vodafone is not likely to push the FTSE 100 to a 10-year high by itself, a new high for 2013 could be achieved. A sale of Vodafone's stake in Verizon Wireless, or a takeover approach for Vodafone, could push the shares as high as 250 pence. A 25% rise in Vodafone's share price would see the FTSE 100 rise beyond 6,500.

In the absence of a takeover, shareholders will be comforted by a reliable dividend stream. Vodafone is expected to pay 10.7 pence in the current calendar year, a 5.6% yield at today's price.

These three big blue-chips may hold a dominant position in their markets today but are they safe to tuck away for the long term? Analysts here at The Motley Fool have prepared a new report "5 Shares to Retire On" with the lowdown on their five top income stocks to own for the years ahead. Just click here to get your free copy of this report today.


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Stocks Mentioned

Vodafone Group Plc Stock Quote
Vodafone Group Plc
$15.02 (2.67%) $0.39
GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
$1,798.40 (2.45%) $43.00
HSBC Holdings plc Stock Quote
HSBC Holdings plc
$30.78 (0.23%) $0.07
Vodafone Group Plc Stock Quote
Vodafone Group Plc
$120.06 (1.90%) $2.24
HSBC Holdings plc Stock Quote
HSBC Holdings plc
$498.55 (-0.57%) $-2.85

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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