FTSE 100: Contrarian Value Investors Profit as Takeovers Loom

The U.K. FTSE 100 index has been on a slow but steady upward trajectory, with investors taking a contrarian approach to value investing in the U.K. market. Despite the FTSE 100 chart appearing weak compared to the Nasdaq, the index has recently shown signs of breaking out, indicating a potential turnaround in the bear trend.

Contrarian value investors have been profiting from this strategy, as cheap stocks that are also good companies can recover significantly when they turn from a bear trend. This approach is less popular than momentum investing in U.S. stocks but can still generate substantial profits for those who can stomach going against the herd.

Many of the painfully cheap companies in the U.K. market generate enough money and cash flow to enable a purchaser to fund the price of buying them on credit and repay the debt within a few years. This has led to a torrent of takeovers in the U.K. market, with foreign companies looking to acquire British companies with single-digit P/E ratios.

However, the U.K. government has implemented legislation to block takeovers from abroad, which has dampened the ongoing price of FTSE shares. The new British chancellor has replaced the boss of the Competition Commission, signaling a more laissez-faire approach to business and nature taking their course.

This change in policy could lead to an open season for foreign companies with better valuation metrics to acquire FTSE 100 companies and juice up their earnings. This strategy could work to kick the London market out of its malaise and drag up valuations to a level where bargain basement prices vanish.

The prospects for investors are good, with the potential for a parade of M&A activity that could signal a game on for the London Stock Market. The next stop for the FTSE 100 could be 9,000, indicating a significant recovery in the index.