Investing in 2020 hasn’t been easy. Some assets classes have massively outperformed others. Even at an individual stock level, there’s been a large difference between winners and losers. The stock market crash in March meant that the FTSE 100 as an index fell below 5,000 points for the first time in several years. Since then, some sectors (such as aviation and travel) have struggled to get going again. This leads to the key question of how to tell whether a stock is a bargain or simply something to stay well away from with your £2,000 investment pot.
Investing and Bitcoin
Some argue that investing in stocks right now isn’t the right call. They point to cyrptocurrency, which has generated strong returns year-to-date. For example, Bitcoin is up over 60% this year so far. I agree that the returns are stellar, but would still caution against heavily investing in it. I’ve yet to find someone who can give me three fundamental reasons as to why the price has rallied so much this year!
Also, it’s worth noting that the Bitcoin return isn’t all that special if you compare it to some individual FTSE 100 stocks. I recently reviewed the top 10 performing stocks for the first half of the year, which you can read here. From it you can see that the Ocado share price returned close to 60% in the first six months as well. Best of all, I can give you at least three fundamental reasons why this stock has risen, even despite the broader stock market crash.
£2,000 into FTSE 100 bargains
So if we put Bitcoin to one side, are there FTSE 100 bargains still to be had from the stock market crash? I think so. Some of the strong performers from the first half of the year (like Ocado) may have limited upside. So I’d be looking more towards firms with a share price that is still below the year-to-date highs.
With any of these firms, it’s likely that the pandemic has seen it issue a trading update downgrading near-term revenues. But as longer-term investors, if the business is sound overall, this doesn’t worry me too much. For example, I like Diageo (LSE:DGE). Results out this week showed that operating profit fell 47% in the past year ending 30 June. Yet the update commented that the business has “strong cash flow” and are “well-positioned to emerge stronger” from the pandemic. As a result, Diageo is proceeding with the planned dividend for this year.
The Diageo share price is still 28% lower than the levels seen before the stock market crash, which puts it in bargain territory in my opinion. The size of the firm, and the high barriers to entry for anyone to seriously compete with it, make it sustainable for the long term. Investing £2,000 into the share price now could yield strong returns over the coming year. Added to this, you’ll also be picking up the dividend, with the yield at 2.66%.
Overall, I think Diageo is just one example of a FTSE 100 bargain. For a £2,000 investment, I’d feel much more comfortable investing here than in Bitcoin.
