A nosediving UK economy means FTSE 100 investors need to tread carefully before parting with their cash. The coronavirus outbreak threatens to cause the sort of upheaval that Britain, for one, hasn’t experienced for centuries. Diving profits and cash shortages mean many stocks with hitherto bright futures might not be around to realise them.
Footsie colossus Lloyds is a share I’ve suggested share pickers avoid as economic conditions implode. But equity investors don’t need to pull up the drawbridge entirely. There’s a galaxy of great blue-chips that are attractive buys right now.
Red alert
News surrounding the Covid-19 crisis is still dominating global headlines. And rafts of more economic data as a consequence of the pandemic has used up plenty of newspaper ink too. Rumblings of fresh military action in the Middle East has therefore gone largely unnoticed.
Tensions remain high on this part of the planet. The US Navy last week claimed that Iranian naval vessels were engaged in “dangerous and harassing” manoueveres near American warships. The strain between the countries escalated further on Wednesday with news of that Tehran had launched a military satellite into space.
Could the US and Iran be headed towards fresh military action like we saw earlier in the year? It seems that President Trump is preparing for a fresh fight, taking to Twitter to explain that American boats would “shoot down and destroy” any Iranian gunboats which might harass US vessels.
Dividends halted
The news underlines why defence companies are popular in times of social, economic and political upheaval like this. Even with the threat of a pandemic and a consequent smack to the global economy, major military powers don’t stop in their preparations for defence. And this provides companies like FTSE 100 star BAE Systems (LSE: BA) with exceptional earnings visibility, whatever the weather.
Critics would use the Footsie firm’s decision to postpone dividends this month as ammunition against my argument. BAE Systems said it would delay the timing of any payment, according to “prevailing macro-economic and social conditions” in the coming months.
This is no reason for undue concern though. Erring on the side of caution is a good idea given ongoing uncertainty over the spread of the pandemic and the economic impact thereof. And BAE Systems traditionally has a working cash outflow during the first half of the year. Supporting the balance sheet is a wise move.
A FTSE 100 favourite
In truth, the weapons maker has a robust balance sheet. And its role as a major supplier to militaries across the world means business should keep rolling in during the near term and beyond too. It also has a wide supply chain that should help protect against the impact of pandemic-relayed disruptions.
For 2020, BAE Systems trades on a price-to-earnings (P/E) ratio of 11 times. It carries a mammoth 4.6% dividend yield too. I reckon it’s one of the best FTSE 100-quoted safe havens to buy today.
