Last week was tough for the FTSE 100. It ended the week down 2.71% at 10,379.08. Is the Iran war finally catching up with it?
So far, the blue-chip index has been surprisingly resilient. That’s been a pattern across global stock markets, with investors shrugging off warnings of an oil price spike and fuel shortages. Lately, they’ve preferred to focus on an upbeat US earnings season.
But with the crucial Strait of Hormuz tanker route still under threat, the oil price climbed to $105 yesterday, and the FTSE 100 retreated. Where the war goes next is anybody’s guess. So what should we all do?
Should we just get stuck in and start investing?
At The Motley Fool, we think it’s always a good time to buy shares. With the proviso that investors should take a long-term view. The real benefits of equity investing come over time, as share prices and dividends compound and grow. The earlier investors kickstart that process, the better. Also, anybody who delays stock purchases hoping to find an even better entry point will typically miss it, leaving their money sitting on the sidelines even longer.
I’d argue that we’re already looking at a buying opportunity. On 27 February, the day before the US attacked Iran, the FTSE 100 hit an all-time high of 10,910. It’s down almost 5% since. And some individual FTSE 100 stocks have fallen a lot more than that.
Babcock shares have plunged
Perhaps surprisingly, shares in defence, aerospace, and security stock Babcock International Group (LSE: BAB) are down 22% over the last three months. With the US at war, Europe looking to rearm and the UK government under pressure to spend more on the military, it should be flying.
Babcock combines solid operational performance with a £9.9bn contract backlog, and has even been running a £200m share buyback. But I think the share price had simply flown too far, too fast. Some investors will be taking their ample profits. There’s also CEO transition uncertainty following news that CEO David Lockwood plans to retire this year.
I reckon this stock is worth considering
The share price is still up 42% over 12 months, and a stunning 275% over three years. That rapid growth sent the price-to-earnings ratio towards 30, and many clearly felt the good news was priced in, leaving Babcock vulnerable to a re-rating.
We have that now. Its forward P/E is down to a relatively modest 19.8. So it’s better value than it was. Babcock is no longer a recovery play, and I don’t expect the shares to rise as quickly as before. But those who felt they’d missed out on the chance to grab defence exposure at a fair price, now have a second chance. I think it’s worth considering today.
I can see plenty more blue-chips that have been taken a beating in recent months, and are ripe for a recovery, once sentiment improves. So yes, I think now is a good time to buy FTSE 100 stocks. As ever, with a long-term view. For all we know, the index could rebound next week. That’s investing.
