The stock market crash has thrown up many possibilities for investing in cheap shares.
But looking for survivability and recovery potential in the underlying business is key to selecting decent cheap-looking shares now. Select well and they may go on to climb back up.
Fundamental building materials
CRH (LSE: CRH) is a good example of a FTSE 100 firm capable of surviving the crisis and thriving afterwards. The company manufactures and supplies a range of integrated building materials, products and solutions for the general built environment.
I reckon the company will emerge from this crisis intact because it has managed to continue trading, albeit with the usual precautions to protect the staff and customers from the virus. And the directors have also taken the steps many firms have taken to protect the balance sheet, like stopping all non-essential expenditure such as capital reinvestment.
Turnover is down, and some staff have been furloughed. But lockdowns around the world will ease. And CRH, being a big player in its markets, will begin to build up revenues and profits again. When that happens, I’m certain that the share price will drift up to reflect improved trading and a better outlook.
Defensive share with fast-growing division
I’m also keen on Associated British Foods (LSE: ABF). The pandemic and the lockdown have closed all trading through the company’s previously fast-growing Primark chain of value retail fashion and lifestyle stores. But the company also has a food business focused on sugar, grocery, ingredients and agriculture.
After adjusting for the virus with the usual measures, much of the food division has continued to trade through the crisis so far. And I reckon the defensive and cash-generating characteristics of the food division will see the company through.
Meanwhile, the shares have traded on high earnings multiples for as long as I can remember. You can’t have a successful and expanding division without the market taking notice. So I see today’s lower share price as an opportunity to hop aboard the growth story at a lower valuation.
Primark will emerge from the crisis and begin to build up its trade again. Imagine what the company may look like 10 years from now. If you hold the shares from today for the next decade, you may be glad you did.
Top name in online and physical retail and fashion
You’ve almost certainly heard of retail and fashion company Next (LSE: NXT). Naturally, the company has experienced massive revenue loss through its stores because of the lockdown. But it also has an online business that has managed to continue trading, albeit on reduced power.
At the end of April, the company put out a comprehensive statement explaining how it plans to cope with the ongoing crisis and emerge from the other side of lockdown. The directors don’t think things will be the same as they were before. Until we have a vaccine for Covid-19, we’ll all have to live with ongoing social-distancing and other measures.
The outcome for Next is likely to be lower revenues, higher costs and reduced profits. But I’m sure the firm’s business will recover over time. And as the outlook improves, it seems certain that the share price will rise.
