There’s been a lot of noise about the latest FTSE 100 dip, as if this is the final sign that global stock markets have finally run out of road.
The bears are out in force, from Paul Krugman to Albert Edwards at SocGen, warning of rough terrain ahead.
But don’t lose your nerve. Recent precedents suggest this could be a good time to buy.
Christmas Is Coming
At time of writing, the FTSE 100 stands at 6461, down 6% off its 52-week high of 6878, which it hit last month.
Investors are feeling edgy, but remember, this sort of thing does tend to happen in September and October. More often than not, it is forgotten as spirits revive in the run-up to Christmas.
There is nothing shocking, dangerous or unprecedented about the current setback. In fact, it’s the fifth time the FTSE 100 has slipped in the last 12 months.
It dipped to around 6500 or below last October, and in December, February, April and August as well.
Each time, the dip was followed by a sharp rebound.
Investors who were brave enough to buy at times like these, when the market was down, will be a lot happier than those who only summoned up the confidence in the subsequent spike.
It’s at times like these, when the road ahead looks hard and uncertain, that cool-headed investors start their journey to riches.
Tesco Turnaround
If you’re feeling brave, you could hitch a ride on backfiring Tesco (LSE: TSCO). At 182p, it is down a whopping 35% in the last six months, and 50% in the last year.
You will have to contend with profit warnings, fiddled figures, fleeing customers and falling sales, but trading at 5.7 times earnings, you’re getting a whopping discount as a result.
Glaxo Can Go
If Tesco looks too bumpy for you, try stalled pharmaceutical giant GlaxoSmithKline (LSE: GSK). Now could be a good entry point, with the stock down 10% in three months.
The Chinese bribery scandal has taken its toll, and Glaxo hasn’t turned the corner yet, with investigations by the US Department of Justice and UK’s Serious Fraud Office set to follow.
But while the death sentence has been pronounced on the British supermarket, nobody is reading the rights for big pharmo. As Western and Eastern Asian populations age dramatically, its services will be very much in demand.
Trading at 12.5 times earnings and yielding 5.5%, Glaxo could offer a rewarding ride, although not necessarily a smooth one.
Lloyds Lives
Investors in the big banks have had the roughest journey of all, and it isn’t over yet. Yet Lloyds Banking Group (LSE: LLOY) will still have doubled your money over the past two years, even if growth has slowed lately.
Lloyds may still be the pick of the big banks, as it returns to what it does best, servicing the UK retail market. With the IMF saying that the UK will outpace every other major economy this year, including the US, this is a good place to be.
There are dangers, as the housing boom peters out, but rising interest rates could help boost banking margins, and the recent 32% rise in half-year profits to £3.8bn suggest that Lloyds is on the right track.
If the latest FTSE 100 dip is just another blip, now could be a good time to hop on board.
