The FTSE 100 has endured a volatile few weeks. It’s fallen from 7,436 points on February 20 to a low of 4,960 at the time of writing.
Billionaire investor Warren Buffett likes to be greedy when others are fearful. Meaning a stage of high volatility and crashing prices is the perfect opportunity to pick up bargain stocks that can create fortunes in the years to come.
This is good advice in ordinary financial crashes, but the trouble is, the Covid-19 outbreak is no ordinary situation. It’s an unquantifiable threat, which makes it very difficult for financial experts to predict the bottom of the crash.
Index volatility continues
Taking a pragmatic look at it, governments want to protect their economies, and companies want to survive. Governments around the world have already pledged to inject billions into those economies to help them ride out the storm.
So far it hasn’t been enough to stop markets from tanking, but that’s because news of the virus is still filtering through and fear is gripping nations. Much of the volatility is generated by computer algorithms programmed to react a certain way to market changes, further impacting the situation.
Uncertainty is rife, and it’s likely that some companies won’t survive the turmoil. However, I’m sure many will and given time, they’ll come back stronger.
That’s why, if you’re a long-term investor, I think it’s important not to sell out too soon. Those shareholders who stay invested usually benefit more than those who don’t.
This may not be the bottom of the market crash and it could take years for the FTSE 100 to return to previous highs, but this doesn’t mean it’s a bad time to buy.
Some of legendary investor Warren Buffett’s key buying criteria include:
- Choosing an established company
- Avoiding business with high debt
- Seeking dividends
- Low price-to-earnings ratio (P/E)
- Growth potential
FTSE 100 stocks worth watching
The FTSE 100 comprises well-established companies with a high net worth and is generally considered a wise place to invest.
Debt is the next factor worth scrutiny. If a company has high debt, then it faces a higher risk of failure. With the coronavirus crisis gathering pace, this has never been more true.
Tate & Lyle produces the ingredients for many foodstuffs, with a particular focus on sugar alternatives and calorie reduction. It has moderate debt and a dividend yield of 5%. So far it hasn’t experienced significant production or shipment issues related to the virus, but is monitoring the situation. With the global obesity crisis continuing, I think demand for calorie reduction ingredients is likely to continue to grow.
However, there will always be exceptions to the debt rule. Supermarkets, Tesco, Morrisons and Sainsbury’s are each saddled with high levels of debt but are likely to continue to thrive as demand for their products continues.
Each of them also offers dividend yields around 4% and their forward P/E has fallen closer to bargain territory.
Drugmakers AstraZeneca and GlaxoSmithKline have high debt but could be considered defensive plays with the spotlight now on global health.
I think there’s worse to come, but that doesn’t mean you should wait to buy all FTSE 100 stocks. Providing you’re buying a quality business and are willing to be in it for the long haul, then the price you pay shouldn’t matter as much as it might seem at the time.
