Since early 2020, life has been pretty scary for investors. The Covid-19 pandemic sent stock markets crashing around the globe, bottoming out on ‘Meltdown Monday’ (23 March 2020). At this point, the US and UK stock markets had both collapsed by 35%. But, as optimism returned, share prices soared and the FTSE 100 index bounced back from its intra-day low of 4,922.8 points.
For me, the FTSE 100 is cheap today
On Friday, the Footsie closed at 7,095.55, up almost 2,175 points from its March 2020 rock-bottom. That’s a rebound of 44.1% in 19 months. Not bad at all. But, despite leaping far from its lows, I still regard the Footsie as cheap today. Indeed, in both historical and geographical terms, the index looks lowly rated. Hence, I enjoy going ‘bottom fishing’ as I hunt for cheap stocks in the index right now.
That said, history has taught me some painful lessons about buying ailing companies at low prices. Instead, I heed billionaire investment guru Warren Buffett. He said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Thus, what I look for are what I call ‘BBC businesses’.
To me, a BBC business is one that’s Big, Beautiful and Cautious. Big means FTSE 100 companies (the bigger, the better), and Beautiful means global leaders in their fields. Lastly, Cautious means reliable, familiar enterprises with solid balance sheets that pay regular cash dividends. Why do I prefer to buy into BBC companies? Because I still worry about Covid-19 and its effects on the global economy. History shows that the strongest businesses tend to survive stock-market crashes better than smaller, weaker firms. Hence, by investing in BBC stocks, I can hopefully sleep easier at night.
Five mega-cap ‘BBC’ businesses
Here are five massive mega-cap FTSE 10o stocks that I think fit my bill today:
| Company | Sector | Market value | Dividend yield |
| Royal Dutch Shell | Energy | £132.4bn | 3.2% |
| Unilever | Consumer goods | £99.9bn | 3.9% |
| Diageo | Drinks | £82.6bn | 2.1% |
| GlaxoSmithKline | Pharmaceuticals | £70.5bn | 5.7% |
| BP | Energy | £68.8bn | 4.5% |
Currently, I own only one of these five FTSE 100 shares, pharmaceutical giant GlaxoSmithKline. However, I’d happily buy and hold the other four stocks today. Why? First, because they’re huge, powerful businesses with degrees of market dominance. Second, two of them — Unilever and Diageo — are prime candidates for a consumer-led recovery in a post-Covid-19 world. Third, the two remaining stocks (oil and gas supermajors BP and Royal Dutch Shell) are gaining greatly from soaring oil and gas prices.
Most of all, as BBC firms, I think these five stocks would do better than most if the UK suffers another stock-market crash. And, when prices recover, they might bounce back strongly again. That’s not guaranteed, of course, and they all face their own challenges. But I feel that buying these five stocks is like hedging my bets on the direction of the war against coronavirus. Meanwhile, as I wait for these shares to hopefully gain in value, each pays reliable cash dividends (though no company dividends are guaranteed). These range from a modest 2.1% a year at Diageo to a tidy 5.7% a year at GSK (though GSK will cut its dividend in 2022).
Some may think these stocks are boring. But as a veteran value investor of 35 years standing, I don’t need to buy thrilling stocks. Indeed, the past two years have been exciting enough for my blood!
