Markets have come under pressure in the past few days. And committing new capital to shares when you’re wondering whether the FTSE 100 may be about to crash yet again could be rather unnerving. But if you’re like most market participants, then you probably have a long-term investment goal, such as retiring wealthy. In that case, investing in cheap share prices could also help you jump start your portfolio.
This would be especially true if you’re buying defensive stocks in an ISA. Therefore, I’d like to discuss why Tesco (LSE: TSCO) could be a solid investment in these volatile times.
Being defensive against another crash
2020 has shown most market participants the importance of investing in defensive stocks. Such shares help ride out the choppiness in the markets. They also provide investors with stable returns, mostly through dividend income.
The Covid-19 pandemic and the ensuing lockdown have highlighted how grocers are an essential service. Therefore their shares can be regarded as defensive stocks.
Tesco is the largest of the four grocers in the FTSE 100, both by market value and by industry market share. The others are Morrisons, Ocado and Sainsbury.
In the most recent trading update put out by Tesco, chief executive Dave Lewis said: “Covid-19 has shown how critical the food supply chain is to the UK and I’m very proud of the way Tesco, as indeed the whole UK food industry, has stepped forward.“
Year-to-date, TSCO stock is down about 11%, hovering at 226p. By comparison, following the crash earlier in the year, the FTSE 100 index is still down around 20%.
Put another way, Tesco shares have held up much better than most others in the UK’s main equity index. As a result of increased grocery spending, supermarkets are seeing strong cash flows and balance sheets.
The current dividend yield stands at 4.05% and the shares are expected to go ex-dividend next in October. I’d look to buy TSCO stock, especially if there’s any decline in the price toward the 210p level or below.
I believe the best defensive FTSE shares are the ones that won’t see much of a change in customer demand in the coming months. And Tesco would qualify as such a business.
Other FTSE stocks
We mostly invest for future goals, such as saving for a deposit on a home, for retirement or simply gaining financial independence. As part of your investment aims, are you looking for other defensive names? Then there are several other FTSE 100 stocks I’d consider buying as well. I believe they’d help ready my portfolio for whatever comes next.
I regard BAE Systems, British American Tobacco, GlaxoSmithKline, Pennon Group, Unilever and Vodafone as defensive picks for a personal pension portfolio.
Any of these shares could experience choppiness and price declines in the short run. Yet the track record of recovery for most FTSE shares is extremely strong.
Now could be the right time to buy a diverse range of companies. But you should be ready to hold them for the long run. You may also consider investing via Exchange Traded Funds (ETFs). You can easily buy or sell them like you would any other share. An example would be the iShares UK Dividend UCITS ETF, which is a basket of the 50 highest-yielding stocks from the FTSE 350 Index.
