The FTSE 100 index is down around 200 points today, as I write. It looks like fears about a possible second wave of coronavirus infections are causing the weakness. And there’s some logic in that. If we see more national lockdowns, many businesses will experience the snuffing out of the fledgeling recoveries in their operations since the spring.
FTSE 100 shares could be trying to predict a recession
Indeed, it’s easy to imagine a second lockdown in the UK tipping the country into a deep recession. But because that threat is so obvious, my guess is we won’t see a full-on second spring-style national lockdown. For example, it seems unlikely the roads will be almost completely free of vehicles again because of tough restrictions.
The government has been talking about selective measures to combat the epidemic in the country right now. We’ll find out more soon when Boris Johnson addresses the nation on TV this week to reveal the government’s plans for tackling the virus.
Meanwhile, periods of economic uncertainty can cause stocks to fall, as we’ve been seeing over the past few days. Indeed, at 5,810, the FTSE 100 is just over 10% down from its level in early June. However, the index remains more than 16% higher than the bottom of coronavirus plunge in March.
Emotionally, it can be difficult to think about buying shares when the markets are down. But just as we might buy quality goods from a shop when prices are lower in a sale, we could buy the shares of quality companies when they’re selling more cheaply. If you invest with a period of at least five years in mind, there’s time for underlying operations to recover. And shares often respond in two ways. Firstly, the price can rise to reflect improving prospects and profits. And, secondly, the valuation multiple could increase to reflect improving rates of growth.
Quality businesses at a fair price
And that kind of double catalyst has driven Warren Buffett’s investments over the years. Buying quality businesses at a fair price has made him billions. So, I reckon it’s a good idea to become interested in buying shares when the economic outlook is uncertain, such as right now.
In the FTSE 100, I like the look of several quality operators right now. For example, City analysts have pencilled in a strong recovery in earnings next year for paper and packaging company Mondi. The company’s operations have defensive, cash-generating characteristics and I see the stock as a solid long-term ‘buy’.
Meanwhile, international distribution and services firm Bunzl has roared through the crisis with barely a blip in its trading figures. I’d latch onto the strength of the enterprise by acquiring some of the shares and holding them for years. And, in the pharmaceutical sector, I think it’s worth tucking away some Hikma Pharmaceutical shares for their long-term potential.
On top of that, I think there’s decent ongoing recovery and growth potential for fashion clothing and lifestyle retailer Next. And business software provider Sage looks well-placed to succeed in the years and decades ahead.
