Ever since Black Monday in 1987, October has had a reputation for being particularly volatile for share prices. Factor in a global pandemic and I wouldn’t be staggered if next month continues the trend.
With this in mind, how might three of the FTSE 100‘s biggest companies — Tesco (LSE: TSCO), Unilever (LSE: ULVR), and Royal Dutch Shell (LSE: RDSB) — fare when they report on trading?
FTSE 100 beater
Tesco is set to report interim results on 7 October. Considering the impact of the coronavirus, you might think it and other supermarkets would have fared particularly well over the last six months. After all, everyone still needs to eat.
Even so, shares in the market leader haven’t exactly been on fire recently. This may be partly due to investors realising that rising demand for home delivery can also dramatically increase costs.
Aside from this, the departure of highly-rated CEO Dave Lewis may be weighing on sentiment. News that budget supermarket Aldi will be expanding its click and collect service may also have raised concerns that it will eventually move into the home delivery game.
If you give credence to current estimates, Tesco trades on 16 times forecast earnings. Although this valuation isn’t unreasonable, I’d be surprised if we saw a huge move upwards next month, given that the share price has still fared better than the FTSE 100 as a whole.
Quality stock
Also reporting next month (22 October) is Unilever. Owner of hugely popular brands such as Marmite and Domestos, the FTSE 100 consumer goods giant might not have to endure the same competition faced by Tesco. Then again, a tightening of belts in light of the recession could still trip up trading if shoppers move to cheaper alternatives.
Notwithstanding, I remain positive on Unilever as a long-term holding. While sales may ebb and flow, the company consistently generates great operating margins and returns on capital employed. These are the sort of litmus tests to use when looking for quality shares. Just ask UK fund managers such as Terry Smith and Nick Train.
Unilever’s share price is now up almost 30% from mid-March. A valuation of 23 times forecast earnings, however, suggests investors shouldn’t expect too much in October. That said, I’m wondering if we might see a recovery in sales of personal hygiene products following the end of lockdown.
Contrarian pick?
Oil major Royal Dutch Shell is the last of today’s FTSE 100 trio to report next month. Numbers for its third quarter are due to be released on 29 October. Having more than halved in 2020, it’s also the stock most likely to appeal to contrarians, I’d think.
It’s been almost six months since oil prices went negative for the first time in history due to a glut of the black stuff, partly as a result of fewer people being on the roads. In response, the FTSE 100 giant cut its dividend for the first time since the Second World War. It also accelerated its shift to renewables, biofuels, and hydrogen.
Of course, news of a vaccine and a reduction in supply could see Shell soar. Analysts currently have the shares trading on 10 times forecast FY21 earnings.
Nevertheless, anyone ignoring the current coronavirus-related uncertainty does so at their peril. As more local lockdowns are announced, I’m inclined to think the shares will stay depressed for a while.
