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Stock market crash: I’m still buying FTSE shares despite ‘horrific’ new Covid warnings

Harvey Jones — Fri, 26 Nov 2021 11:33:33 +0000

A stock market crash always comes as a jolt (even as an experienced investor), and especially when it’s triggered by a wider worry, as is the case today. The FTSE 100 was down by more than 3% this morning, over fears that a highly-mutated Covid strain discovered in Southern Africa will trigger another wave of shutdowns.

The airlines have been hit particularly hard, with British Airways owner IAG down more than 16%, at time of writing. Ryanair is down 10% and easyJet down by 13%. Aircraft engine maker Rolls-Royce has fallen 5.5%, as fears grow over international travel.

FTSE 100 energy giants BP and Shell are also down around 5% or 6%, as any Covid resurgence could hit demand for oil.

Who’s afraid of a stock market crash?

Judging by the sectors hit today, it’s beginning to feel a lot like March 2020. As well as FTSE 100 travel and energy stocks, entertainment enterprises are in the mire. Cineworld, Mitchells & Butlers and Restaurant Group are firmly out of favour. Online grocery delivery specialist Ocado Group is bucking the trend by climbing.

As Hargreaves Lansdown markets analyst Susannah Streeter has noted, scientists are calling the mutations “horrific” and of “great concern”. Their dire warnings have triggered a sell off in Asia, where Japan’s Nikkei and Hong Kong’s Hang Seng both fell by 2.6%, while in Europe, the DAX, CAC 40, and Euro STOXX 100 are all tumbling.

I have cautiously backed both BP and Shell in recent days, but lacked the courage to buy airline stocks which look too exposed to pandemic uncertainties. That is one reason why I am relatively sanguine about today’s events (at least from an investment perspective). It’s not the most important one, though. As ever in the middle of a stock market crash, the idea of selling any of my shares or funds simply doesn’t occur to me.

I’ll buy FTSE shares once they get cheaper

I’m still more than a dozen years away from retirement, and that gives my portfolio plenty of time to recover from the current setback. With luck, today’s Covid fears will have been overdone. Even if they’re not, it’s impossible to assess the impact on stock markets. There are just too many variables, including how central bankers will respond.

If the stock market crash does lead to a more protracted slump, further stimulus could be forthcoming, bolstering shares. Investors have been quietly making that bet for years. The US Federal Reserve has effectively been backstopping share prices since the financial crisis.

My wider point is that nobody knows where stock markets will go next. They could crash further. If they do, I still won’t sell. Instead, I would take the opportunity to pick up my favourite FTSE stocks or funds at a reduced price.

History shows that stock markets always recover after a crash, if you give them long enough. In my opinion, they remain the best way to generate long-term dividend income and capital growth for my retirement. Today’s grim news won’t change that.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE 100-member Glencore’s share price is in freefall! This is what I think you should do

Peter Stephens — Thu, 10 Jan 2019 11:36:47 +0000

The performance of Glencore (LSE: GLEN) has been disappointing in recent months. As with a number of other FTSE 100 stocks, and especially resources shares, market confidence has declined as concerns surrounding the prospects for the world economy have been the main focus of investors.

Having fallen by 28% in the last year though, Glencore may now offer a value-investing opportunity. Alongside another cheap stock, which released an encouraging update on Thursday, it could be worth buying, in my opinion.

Improving performance

The company in question is pub operator Mitchells & Butlers (LSE: MAB). Its first quarter trading update showed it was able to deliver strong performance during the festive season, with like-for-like sales growth of 9.8% recorded in the three-week Christmas trading period. For the quarter as a whole, food sales increased by 4.6% on a like-for-like basis, with drink sales moving 4.8% higher, compared to the same period a year ago.

The company continues to focus on investment in its estate. It’s aiming to improve amenities in order to provide a better customer experience. It has already completed 114 conversions and remodels in the year to date, while two new sites have been opened.

With Mitchells & Butlers having a price-to-earnings (P/E) ratio of around 8.2, it seems to offer good value for money. It appears to be making progress in attracting new customers and retaining existing ones, while investment in its estate could improve its competitive advantage. Although the prospects for the wider industry remain uncertain, the stock seems to offer a wide margin of safety at the present time.

Recovery potential

Glencore also seems to have a relatively appealing stock price valuation. Its P/E ratio stands at 7.5, which suggests that investors have factored in the risks facing the business and the wider resources industry. Even though the company is only expected to report a 1% rise in earnings in the current year, the cyclicality of the commodity industry suggests that long-term investors may experience significantly improved returns in the coming years.

After a prolonged period of global growth, investors are increasingly questioning the outlook for the world economy. There are numerous risks to growth, including poor trade relations between the US and China, the impact of rising US interest rates, and Brexit. All of these risks could cause a deterioration in growth over the medium term, and this could be negative for the financial performance and valuations of a range of commodity stocks.

However, Glencore’s falling share price could be an opportunity to capitalise on the cyclicality of the resources industry. Buying while the outlook for the company is downbeat may not lead to quick returns. But since the long-term prospects for the world economy remain bright, it may mean that investors can benefit from low valuations and a possible recovery. From a risk/reward perspective, therefore, the stock could offer significant appeal.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This FTSE 100 growth and dividend stock is too cheap to ignore

Peter Stephens — Fri, 12 Jan 2018 10:45:07 +0000

The FTSE 100 may have soared in recent years, but there are still a number of growth and dividend opportunities. Although they may offer reduced margins of safety in some cases after share price growth, they could still generate total returns which are relatively high in the long run.

Improving performance

One example of such a stock is easyJet (LSE: EZJ). The company has experienced a hugely challenging period in recent years, with demand for its services falling due to fears surrounding terrorism. Alongside this, a lower fuel price has encouraged greater competition in the European short-haul airline industry. This has meant that sales for many of the major players across the industry have come under pressure. As such, easyJet has delivered two years of falling profitability.

This year though is set to see a return to strong bottom line growth. The company is forecast to post a 17% rise in earnings following the adoption of a refreshed strategy. This has seen it focus on increasing passenger numbers, which seems to be having a positive impact on its overall performance. Despite this, it trades on a price-to-earnings growth (PEG) ratio of just 0.9, suggesting there could be upside potential on offer.

Dividend prospects

As well as strong capital growth prospects, easyJet also has impressive income potential. It currently has a dividend yield of around 2.9%. With dividends being covered 2.2 times by profit, they seem to be highly sustainable at their current level. With profit growth expected to be recorded in future years, it would be unsurprising for dividend growth to maintain a similar pace to the rise in earnings. As such, it could become an increasingly popular income stock over the medium term.

Low valuation

Also offering a mix of capital growth and income prospects is pub operator Mitchells & Butlers (LSE: MAB). It released a positive trading update on Friday which showed that trading through the core three-week festive season was strong. The company was able to deliver like-for-like (LFL) sales growth of 3.9% during the period. In the seven weeks since its last update, LFL sales were 1.6%, which gives a figure of 2.2% in the financial year to date.

With a price-to-earnings (P/E) ratio of 8, the stock appears to be cheap at present. Of course, this is for good reason, since the outlook for the leisure industry in the UK remains challenging. Higher inflation has caused consumer confidence to decline, and this may put the sector’s sales growth outlook under pressure.

However, with such a wide margin of safety, investors appear to have priced in potential difficulties for Mitchells & Butlers. Alongside this, the company has a dividend yield of 3.6%. With dividends being covered 3.7 times by profit, they could rise rapidly in the long run.

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Peter Stephens owns shares in easyJet. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One dirt-cheap dividend stock I’d buy and one I’d avoid

Roland Head — Wed, 01 Nov 2017 15:47:14 +0000

Today I’m looking at two dividend stocks with similar yields and modest valuations. But despite this apparent similarity, there’s only one I’d consider buying. Here’s why.

Struggling for growth

Insurance firm Just Group (LSE: JUST) is the product of a merger between Partnership Assurance and the Just Retirement group in 2016. Combining these companies was supposed to boost profits by reducing costs.

According to today’s third-quarter update, that’s exactly what’s happened. Cost savings resulting from the merger have now exceeded the group’s original £45m target. According to the company, this remains “a key element of delivering a better return on equity”.

Just’s sales are split roughly equally between de-risking insurance for final salary pension schemes and annuity-type products for individual retirees.

As you’d expect, the group has benefitted from new pension rules allowing individuals to transfer cash out of their final salary schemes. What concerns me is that despite this, growth is pretty much non-existent.

Shrinking not growing?

Today’s third-quarter update reveals that total new business sales fell by 6% to £1,631m during the first nine months of this year.

Sales of Guaranteed Income for Life products rose by 1%, while sales of de-risking insurance for final salary pension schemes fell by 2%. Sales of care plans have fallen 33%, suggesting a fundamental shift in the market.

The company doesn’t provide much explanation for this, except to say that “our focus on margin rather than volume continues to deliver profit growth.” Fair enough, except that most other companies in this sector appear to be delivering a mix of volume and margin growth.

At 153p, Just shares trade around 30% below the firm’s embedded value (an industry measure) of 221p per share. Measured against earnings, the stock trades on a forecast P/E of 12 and has a prospective dividend yield of 2.4%.

Although these figures look cheap, I think the firm’s lack of growth makes it risky for shareholders. I feel there are better choices elsewhere.

The ‘local’ choice

Shares of pub chains have fallen out of favour over the last year. And I’ll be honest, things could get worse. But there’s a fair amount of bad news already in the price of these stocks and recent trading updates haven’t been too bad.

My top choice in this sector is Mitchells & Butlers (LSE: MAB). This FTSE 250 stock recently reported like-for-like sales growth of 1.8% for the 51 weeks to 16 September, with total sales up by 2.9% over the same period.

Given the impact of inflation, this probably means that volumes have been flat or slightly lower over the year. But Mitchell & Butler has a number of attractions which I think could make it a worthwhile investment.

The first is that although the company’s dividend yield of 2.9% is relatively low, it should be covered three times by earnings. This reduces the chance of a dividend cut and hopefully lays the foundation for future growth.

My second point is that Mitchells & Butlers is starting to look quite cheap. The stock trades on a forecast P/E of 7.5. And at 258p, the share price is almost 30% below the group’s net asset value of 360p per share.

In my view, this stock could soon make sense as a recovery buy. It’s on my watch list.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.