The FTSE 100 stands spot on 6,000 points as I write, down 20% since the coronavirus threat appeared. But how do we find the crashing shares to buy during the FTSE 100 slump?
We could look for defensive stocks and buy for safety. But there’s an alternative. I say let’s examine those that have been harmed, and will be harmed, and think about buying those instead.
My rationale is that they’re likely to be oversold, as so often happens when a market panic is in full swing.
Crashing oil shares
The virus threat, coupled with a failure by OPEC countries to restrict supplies and keep prices up, has led to an oil price slump. From around $65 per barrel at the start of the year, oil has slumped to just $39. And oil stocks have collapsed along with the price.
I think some companies are too risky to consider, as there’s a real chance they could go bust. But surely not Royal Dutch Shell (LSE: RDSB). At 1,340p, Shell shares have fallen 30% during the coronavirus panic. And they’re down 40% since the start of the year as oil price weakness was already taking its toll.
The price fall has pushed Shell’s forecast dividend yield up to 10.8%, and that’s the kind of income that could make a big difference to your pension prospects. Of course, if oil stays this low for a prolonged period, the dividend might be cut.
But if there’s one lesson I took from the last oil price slump, it’s that it was a great time to buy Shell shares for the long term.
The travel business, which was already under pressure, has taken a big hit. Folks are staying at home, holidays are being postponed, and flights are being cancelled. And the crisis has pushed the International Consolidated Airlines (LSE: IAG) share price down more than 35%.
Normally I wouldn’t touch airline shares, as they’re faced with so many business factors that are beyond their control. The most obvious is the price of fuel, and these businesses are at the mercy of wherever the oil chart goes. Ironically, coronavirus fears have helped ease that burden a little, though it’s perhaps of small comfort to shareholders.
But this time next year, will the coronavirus pandemic be over? Will British Airways and Iberia flights be back to normal levels? Will IAG be back to its usual profitability and still paying out desirable dividends? I say yes.
The virus has hit Lloyds Banking Group (LSE: LLOY) shares too. But why? Well, everything seems to impact on Lloyds shares these days. It doesn’t matter what it is, if it’s negative, someone will use it as a reason to sell Lloyds.
Being a little more serious, should the contagion cause a UK recession, or even a worldwide recession, Lloyds could genuinely be hit. The profits that have been growing in recent years are already looking slightly risky, and the chances of Lloyds’ progressive dividend having to be cut have surely risen.
But look at the share price. It’s down 25% in the panic, and down 30% since the start of the year. And the forecast dividend yield is up to 8%. It’s possible that the long-term Lloyds bears are right. But if they’re wrong, Lloyds could be a great buy now.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.