Since crashing below 5,000 points a few weeks back, the FTSE 100 index has rebounded back up to near 5,700 points. This bounce has offered us all some respite from the intense selling activity we saw earlier in the month. But my hunch is that we may see another down-leg in the near future. After all, the coronavirus situation is clearly far from over. With that in mind, here’s a look at a FTSE 100 stock I’d like to buy more of if we see another stock market crash in the near term.
One Footsie stock I’d like to pick up more of at a bargain price is DS Smith (LSE: SMDS). It’s a leading packaging company that specialises in manufacturing corrugated packaging. You know, the type of boxes that Amazon deliveries come in. I see DS Smith as a stock to hold for the long term given its exposure to the e-commerce industry.
Now, the packaging industry is cyclical, so you would expect some companies in the industry to suffer in the current environment. However, there are two reasons I believe DS Smith may not fare as badly as others. Firstly, its exposure to e-commerce should offer some protection. People are shopping from home more often now. Secondly, it has substantial exposure to the consumer goods sector. This should offer protection in the wake of the coronavirus outbreak as people still need to eat.
It’s worth noting that a statement on the DS Smith website confirms that, to date, it hasn’t seen any “significant disruption” to its operations from the coronavirus. It says that it has been supporting its customers to deliver food direct to supermarket shelves. And it’s been working hard to ensure medicines and medical equipment can be shipped to where needed most.
It also says it’s playing a “critical role” in the food and pharmaceutical supply chain as demand for these products increases and that it has been working flat out to develop bespoke ‘drop and go’ packaging that enables retailers to support vulnerable citizens. Its carefully-designed boxes can be stacked in delivery vans, picked up, and then simply dropped off to support the safety of everybody involved in the delivery process.
Of course, while DS Smith appears to be holding up well right now, there are risks to the investment case here.
One is debt, which is a little higher than I’d like it to be. In the company’s half-year results in December, it said that its net debt/EBITDA ratio was 2.3 times, which is relatively high. To the FTSE 100 company’s credit, however, it recently advised that it would be using the proceeds from the sale of its plastics division (approximately £400m) to reduce gearing to a level in line with its medium-term net debt/EBITDA target of two times.
I also think there’s a chance the company may suspend its dividend in the near term to conserve cash and boost its balance sheet as the economy slows down.
Overall however, the long-term growth story here remains attractive, in my view. The more we shop online, the more corrugated packaging we’ll need. I’m hoping I can grab some DS Smith shares at a rock-bottom price in the near future to benefit from the long-term growth story.
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Edward Sheldon owns shares in DS Smith. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended DS Smith and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. 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.