Picking FTSE 100 shares for your portfolio in the current environment is challenging. With the world going into shutdown as a result of the coronavirus pandemic, a lot of businesses are being hit hard. Some may not survive.
That said, there are companies that should recover from any economic downturn relatively quickly. Here’s a look at two FTSE 100 stocks I believe have the potential to rebound in the medium term.
One FTSE 100 share I’m confident will recover from the coronavirus crisis is alcoholic beverages champion Diageo (LSE: DGE).
While many pubs and bars around the world are shut right now, people are still drinking alcohol at home. Quite a lot, if the alcohol section in my local supermarket is anything to go by. And when the coronavirus lockdown measures are removed, I expect to see consumption pick up. Even if we’re in a recession.
It’s worth noting that insiders (the CEO, CFO, and a board member) at rival Davide Campari – which owns the brands Campari, Aperol, and SKYY Vodka – have been buying a large number of shares recently.
Similarly, insiders at rival Remy Cointreau – whose brands include Remy Martin, Louis XIII, and Cointreau – recently sold a huge number of put options on the stock (an investor sells a put when they expect the underlying security to rise).
This buying activity from insiders leads me to believe that alcoholic beverage companies should survive a downturn and recover relatively quickly. Diageo shares have fallen nearly 25%, year to date. I’m viewing this share price weakness as a buying opportunity, as I expect them to rebound.
Another FTSE 100 share I expect to rebound in the medium term is online broker Hargreaves Lansdown (LSE: HL). Its share price has fallen a little over 30%, year to date.
Looking at Hargreaves’ financials, the company appears to have the financial strength to survive an economic downturn. At 31 December 2019, the group had a net cash position of £318m. It was also debt-free.
“The Board believes the Group has strong profitability, liquidity and a capital position to execute its strategy without financial constraint,” the financial services company said in its most recent half-year report.
Of course, in the near term, Hargreaves Lansdown’s profits are going to take a hit as a result of the recent stock market crash. This is because a lot of its fees are linked to the size of its assets under management. However, equity markets should eventually rebound when the coronavirus uncertainty dissipates. When they do, Hargreaves’ profits, and its share price, should rebound as well.
Considering Britons are still going to need to save and invest for retirement after the coronavirus crisis, I think the share price weakness here is a buying opportunity.
Edward Sheldon owns shares in Diageo and Hargreaves Lansdown. The Motley Fool UK has recommended Diageo and Hargreaves Lansdown. 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.