At the moment, the stock market feels strange. Each day the pendulum swings drastically: one day it ends several percentage points down, another day there might be a surge upwards.
No one is certain how the coronavirus will impact the economy, just that it will. As travel restrictions and lock-downs are implemented in various places around the world, businesses revenues will be hit. Certain industries will hurt more than others. It is fair to assume the wider economy will suffer some degree of damage.
The FTSE 100 has been hammered recently. Since the start of the year, the index is down by 31%. It might be mind-boggling for people to consider investing in such a turbulent market. But as the legendary investor, Warren Buffett, has said: “be fearful of when others are greedy, be greedy when others are fearful.”
It is easy to say, but buying when people are pulling out of the market takes nerves of steel. However, picking up shares in great companies while they are on sale could be a great strategy to increase your wealth.
With FTSE 100 prices in a rut, now could be a great time to be cautiously greedy and buy good-quality stocks.
I’d look here!
Royal Dutch Shell
With the anticipated hit this will cause to Shell’s revenue, the share price has dropped by a huge 56% in three months. This significant reduction to Shell’s share price means its price-to-earnings ratio is just 6.
Currently, the shares carry an extremely generous prospective dividend yield of roughly 14%. Famously, Shell’s dividend has not been cut since World War II.
I believe Shell’s share price offers something for income and value investors alike. Hopefully the oil price will stabilise soon, leaving investors who buy now very happy.
Since the coronavirus outbreak, I have been very cautious in my consideration of FTSE 100 stocks. With worldwide government action being carried out, each industry has different – and unknown – risks.
I have sought solace in good-quality consumable stocks. I believe a corporation that has a strong portfolio of well-loved brands will always have customers, even in times of hardship.
That is one of the reasons I love Diageo (LSE: DGE). With brands like Guinness, Smirnoff and Baileys in its portfolio, it has an inbuilt economic moat.
The risks of buying consumable shares in the current climate involve potential disruption to the supply chain, especially if restrictions are placed on imported goods.
In the past three months, Diageo’s stock price has dropped by 23%, giving it a price-to-earnings ratio of 18.
That might be a bit on the high side to get some value investors excited. For others, it might offer the opportunity to own a good-quality stock for a lower price.
T Sligo has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.