When the market crashed in 2020, the FTSE 100 index, like many others worldwide, tumbled in value. With economic reopening in full swing and the FTSE 100 reaching pre-pandemic levels last week, I take this as a sign of health for the market as a whole. I’m now on the lookout for quality stocks to bolster my portfolio.
I believe I have found two picks. I pride myself on stock-picking, therefore I am focusing on good quality companies at cheap prices that could grow in the long term. But before I get into my picks, let’s take a look at the recent activity of the UK’s premier index.
FTSE 100 rises to pre-pandemic levels
As I write, the FTSE 100 index stands at 7,223. It hasn’t been here since the pandemic-related market crash in February 2020! At this time last year, it stood at 5,860 which is a 23% increase. So why is the market rising and what does that mean for me as an investor?
Although economic reopening is in full swing, I find it a bit odd that the market is rising with a lot of negative news right now. The haulage and transport crisis, high energy and oil prices, and rising inflation are three key headlines that spring to mind here.
Ironically, one of these reasons is my explanation for the market rising. High oil and gas prices are boosting some of the biggest FTSE 100 names, such as Royal Dutch Shell and BP. In certain instances, if these share prices move in the same direction, they take the whole index with them.
I must note too that economic reopening has benefitted many firms recently. 2020 was a tough trading year and many struggled for profits. Pent-up demand, the lifting of restrictions, and regular trading in respective markets meant profits are returning once more. This will have also boosted investor sentiment towards UK and worldwide indices.
FTSE 100 precious metals miner
My first pick is precious metals miner Polymetal International (LSE:POLY). When the markets crashed last year, investors ignored stocks and shares and turned towards commodities such as gold and silver and other materials as safe havens. As such, precious metals prices have been rising and gold is leading the way. As rising inflation fears in all major world economies continue, I believe this upward trend of pricing in commodities may continue.
FTSE 100 incumbent Polymetal is involved in mining gold and other precious metals such as copper and zinc. As well as economic factors pushing the price up, the reopening has led to an increased demand in such metals as well. For example, there is very high demand in China right now.
As I write, shares are trading for 1,414p per share. At this time last year, shares were trading for 1,760p, which is actually a 19% decrease. In times of economic uncertainty, volatility in commodities can often mean volatility in share prices for companies that mine and trade in them. I actually see Polymetal’s decrease in the past year as an opportunity to pick up cheaper shares.
I like Polymetal for a few reasons. Firstly, it has a good balance sheet and a good track record of past performance. I understand past performance is not a guarantee of the future but I use it as a gauge nevertheless. I can see that revenue and gross profit have increased year on year for the past four years. Next, I believe Polymetal has defensive qualities that offer it a certain amount of protection in an economic downturn. At current levels, I believe it is a cheap FTSE 100 stock too.
I must note the risks of Polymetal too. Commodities are volatile at the best of times. In times of economic uncertainty, this volatility can be more heightened. The Polymetal share price and performance could be affected. Furthermore, competition in the precious metals sector is intense and this could also hinder Polymetal’s performance and returns as well.
Delivery giant
My second pick, Deliveroo (LSE:ROO), could be described as a beaten down stock away from the FTSE 100. The online grocery and food delivery market is on an exceptional growth trajectory and has exploded in recent years. I believe Deliveroo is one of the biggest players in the market with lots of brand recognition through hard years of work and acquisitions. I believe this offers it a competitive edge.
Food delivery and other e-commerce based stocks were big winners in the pandemic. As restrictions were in force throughout the country and other parts of the world, people turned to food delivery apps aplenty. Digital shopping has also increased in recent times and the pandemic exacerbated this.
As I write, shares in Deliveroo are trading for 275p. A year ago, shares were trading for 287p, which means shares have dipped 4% over a 12-month period. I am not worried, in fact, as a potential long-term investor, I would value current shares as cheap.
One of the primary reasons I like Deliveroo is its propensity to acquire other firms to boost its offering and footprint. This allows it to reach new customers and areas which can only benefit its performance and financials over time. In addition to acquisitions, Deliveroo continues to strike up strategic partnerships to boost performance. It recently signed a deal with UK retailer John Lewis which will be useful for gaining new business and clientele. Last month, Amazon announced it would give its Prime subscription members free delivery services through Deliveroo. These types of moves offer it a competitive advantage.
I must note there are risks with Deliveroo too. Firstly, competition is intense in the market. Others are vying for the best deals and market share, which could affect Deliveroo’s performance and share price too. Since the recent rise in food delivery firms, rider and driver employee rights have been an issue. These negatives could affect investor sentiment massively. Finally, acquisitions can be costly and often not work out. This can hurt investor sentiment and even affect potential returns.
My verdict
With the recent rise in the FTSE 100, I believe now is as good a time as any to look for quality stocks to add to my portfolio. I always look to buy and hold for the long term. With that in mind, I would happily add Polymetal and Deliveroo shares to my portfolio. I believe they could offer me good returns on investment over time.
