The recession will last all of 2009. You can turn off the lights and give up, or you can take advantage of the pessimism to buy shares. We name 5 incredibly cheap FTSE 100 stocks.
I’ve been saying for a while now this stock market is a buy. At times, my bullishness has made me look silly, unrealistic, or in complete denial.
I know the global economy is in recession. I know the UK economy in particular is struggling big time, more so than the US and other parts of Europe. In fact, it appears as if the UK economy is in the worst shape out of all Western economies, bar Japan and Iceland.
How could that be? Seemingly the cheap and abundant debt our banks threw at us encouraged us to splurge more than most other countries? Was it our banks or was it us? Submit your answers in the comment boxes below.
Whatever the reason, the reality is the UK economy is in the poop. Consumers have stopped spending. Unemployment is rising, and company after company is announcing job cuts. To top it all off, house prices are still falling, and will fall further.
No Light At The End Of The Tunnel
Right now, it’s hard to see any light at the end of the tunnel. It’s a long and winding tunnel. If you can see any light, any tangible light, again please let us know in the comment boxes below.
I can’t see any tangible light, and I’m an optimist. I hate to think what the pessimists can see through their blackened sunglasses. They’ll no doubt let us know below too.
All I’ve got to offer, and none of these are tangible lights, is the following…
- Record low global interest rates, and equally low mortgage rates.
- Huge stimulus packages announced by the US, China, UK, Australia and many other countries. The scale of the spending is simply enormous.
- Business and personal tax cuts, and/or benefit payments, and/or mortgage renegotiations.
- Past recessions have ended and growth has returned.
Pessimists Rule The Waves
The pessimists will say I’ve got nothing, and that this recession is different. Because it involves deleveraging on a massive scale, as companies and individuals are forced to pay back huge amounts of debt, it will be a long and deep recession. Some might say it will last for five years or more. Some might point to Japan, where low interest rates haven’t stopped the economy from seemingly being in a permanent recession since 1990.
The pessimists will also point to how on earth the governments of the world, and particularly the US and UK, will be able to service their current debt levels, let alone their massive spending binges. If the oil rich Middle East and the just plain rich Chinese stopped investing in our companies and our treasuries, who else would prop us up? Tibet?
Call me an optimist, but I just think things will work out. We’ll be in recession for most if not all of 2009, and maybe some or even all of 2010. As I said, the tunnel is long, dark and uncertain. But when it comes to stock market investing, the best time to invest is in times of pessimism, and there’s clearly no shortage of that at the moment.
Guru To Mortal: Shares Are Cheap
To state the bleeding obvious, it’s also best to invest in the stock market when stocks are cheap. Just about every guru around, including Warren Buffett in the US and Anthony Bolton in the UK, are saying shares are cheap. Not only that, they are buying shares with their very own money.
Despite that, investors remain fearful. If they have any spare cash, they are leaving in the bank, happy to earn ever dwindling rates of interest. If they already own shares, they are selling, fearful of incurring more losses. If they are fully invested in shares, instead of selling the weak and replacing with strong, they remain in a daze and in a deep freeze, doing nothing.
I think stock market investors, sometime over the next two years, will look back on these days and think to themselves “what on earth was I doing not buying shares at these absolute bargain prices?”
Here is just a small selection of incredibly cheap FTSE 100 companies. I’ve deliberately chosen companies from a few different sectors to show it’s not just one sector that’s cheap. They all are!
Company | Share Price | Forward P/E | Forward Dividend
Yield |
|---|
| AstraZeneca (LSE: AZN) | 2,561p | 7 | 6.3% |
| ICAP (LSE: IAP) | 235p | 7 | 7.4% |
| Drax Group (LSE: DRX) | 537p | 7 | 7.5% |
| BHP Billiton (LSE: BLT) | 1,234p | 9 | 4.2% |
| Vodafone Group (LSE: VOD) | 132p | 9 | 6% |
There are no guarantees in investing, but over a three to five year perspective, I’d reckon there’s a pretty good chance the portfolio of companies above should earn you more than leaving your money in the bank.
I have three provisos.
- You must be able to handle volatility.
- You must be an optimist.
- Do your own research and make your own investing decisions.
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Good luck and happy investing.
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> This article was first published on 14th November 2008. It has been updated.
> Of the companies mentioned in this article, Bruce Jackson has a beneficial interest in ICAP and BHP Billiton.
