The stock market crash has thrown up bargain FTSE 100 shares everywhere you look, but which ones do you buy? In volatile times the trick is to look at the long-term prospects of the company, rather than short-term valuation swings.
Top UK fund manager Nick Train admires companies that take a long-term perspective when investing in their own business. Here are three FTSE 100 stocks he says are feeling sufficiently robust to add acquisitions to their business, despite the pandemic. The stock market crash gives you an opportunity to buy them at a discounted price.
In the right spirit
Train admires the move by spirits giant Diageo (LSE: DGE) to buy Aviation American Gin, part-owned and endorsed by celebrity Ryan Reynolds, for a potential $610m. He sees the purchase as a reassuring sign the group’s balance sheet and liquidity are in good shape, despite the stock market crash.
He says the US gin brand has seen “exponential growth” and Diageo is paying 20 times sales to take the brand to another level. It echoes Diageo’s successful $1bn acquisition of George Clooney-sponsored super-premium tequila brand Casamigos in 2017. Train said that deal “looks smarter and smarter as the US spirits boom continues, with premium brands leading the way.”
The Diageo share price is still trading 20% lower than before the stock market crash. I’m a long-term fan who’d buy today.
Scientific, technical and medical publisher and exhibitions company RELX (LSE: RELX) is another Train favourite that’s been on the acquisition trail. In August, it snapped up Cambridge-based privately held company pharmaceutical software company SciBite, for a rumoured £65m.
RELX has now spent around £800m in 2020, and Train speculates its purchases could one day be worth billions. The stock market crash has also punished the RELX share price, which is down 20% from its January peaks, giving a buying opportunity.
Another stock market crash buy
Finally, Train applauds luxury fashion house Burberry Group (LSE: BRBY) for pushing ahead with its new joint venture store in Shenzhen with Chinese tech giant Tencent. This aims to be a radical new interactive shopping experience for the digital age.
He admires the stock for having strong “brand resonance” in the East, where retail and luxury innovation is now outpacing the West.
The Burberry share price is down to around 30% this year. Train compares this slump to a similar stock in his portfolio, Prada, whose share price has largely shrugged off the stock market crash. Brexit may be one factor. “Apparently global investors have an aversion to the UK stock market, but this is, in some cases, getting ridiculous,” he says.
You can find cheaper shares but these still look like bargains. Burberry trades at just under 20 times earnings, but that’s cheap by its standards. Diageo and RELX are yours for around 22 times earnings, cheap by theirs.
If want to buy FTSE 100 companies looking beyond this year’s stock market crash and pandemic turmoil, Diageo, RELX and Burberry could be a great place to start.