When the stock markets are doing well, it is easy to believe that the good times will last. But as is evident from the Covid-19 episode, things can change fast. And in fact, they do even if there are no shocks to the system. Business cycles are part of market economies, creating fluctuations in stock prices. Cyclical stocks are particularly vulnerable to such events. But they can still be solid FTSE 100 growth stocks to buy for the long term. Like the luxury fashion brand Burberry (LSE: BRBY), which I would buy now for £1,000 if I had not done so already.
Burberry’s recent challenges
The last few years have been difficult for Burberry, to be sure. China is one of the company’s biggest markets, which means that it was one of the first stocks to get impacted when the coronavirus first came around. Between February 2020 and March 2020, the stock lost more than half its value. It started recovering soon after, but the journey to recovery has not been without its challenges. Its CEO, Marco Gobbetti, who was credited with turning the company around earlier, exited during this time. And swinging back into strong financial health has also taken its time.
China drives the FTSE 100 stock
But I am firmly of the view that Burberry could be a very good stock to buy and hold for the next few years at least. There are plenty of reasons to believe so. First, China’s growth is back. After a decline in its economy during the pandemic, its growth bounced back to 8.1% in 2021. This is good for the iconic British brand, whose demand can be sensitive to consumer optimism. Economic recovery in other markets, like the UK, should also bode well for it. The UK economy just came back up to its pre-pandemic levels and the outlook is positive too. This has shown up in latest growth projections as well.
Pandemic’s end
The company expects that for its current financial year, its adjusted operating profit will increase by 35% from the year before. The near-end of the pandemic is also a positive for it. This is because it should allow further opening up of travel, which could also impact it positively, encouraging consumers to travel to shopping destinations. Moreover, I see it as a relatively inflation-proof stock, which is a significant merit at this time, in my view. Consumers who buy its products are unlikely to be overtly concerned about a small price increase.
Possibly undervalued FTSE 100 growth stock
Despite these positives, this FTSE 100 growth stock could be seen as relatively undervalued. It has a price-to-earnings (P/E) ratio of 17.5 times at present, which is far lower than its global peers like LVMH, which trades at a P/E of 28 times. It is higher than that for the FTSE 100, which is at around 16 times, for sure. But going by the outlook for cyclicals, I would expect it to outperform the FTSE 100 this year, which in turn should be reflected in a higher than average P/E.
