The coronavirus has seen one of the most rapid stock market falls in history. Yet in the process, some good FTSE 100 stocks have also been swept up in the sell-off. A savvy investor should aim to separate the stocks that are in trouble from the ones that have been oversold. From this, you can look at some smart investments for a Stocks and Shares ISA.
Why an ISA?
Given the new ISA allowance of £20,000 that started with the new tax year, it makes sense to put stocks into the tax-free wrapper that an ISA provides. When we see the market eventually move back towards the levels seen at the start of the year, this should really pay off. Sheltering your investments within a Stocks and Shares ISA could mean saving hundreds (if not thousands) of pounds in capital gains tax as all gains in an ISA are tax-free. With that cleared up, let’s move on to the ideas themselves.
Ocado (LSE: OCDO) is an online supermarket and technology play. Not having a physical presence might have been an issue a few decades ago, but not now. Having an efficient operation comprising warehouses and fleet of vans, plus all the tech it relies on, allows the firm to avoid costly store overheads. It has also done well during the growth phase by partnerships with larger firms such as Waitrose. As of September, it will team up with Marks & Spencer instead to sell the retailer’s branded products.
Its growth has been artificially pumped higher due to the coronavirus pandemic. It even had to temporarily halt online delivers due to the sheer amount of demand it was seeing for orders. Thankfully, business is back and booming. In a recent company statement, it said first-quarter revenue was 10.3% higher at £441.2m.
After an initial sell-off, the share price is starting to rally. Given the Q1 performance, I think it could continue to do well. It’s going to take a long time for consumers to feel comfortable going back into retail stores, and so the strong online presence Ocado has built up will serve it well.
Going up in smoke?
The recent share price performance for Imperial Brands (LSE: IMB) has been anything but positive. In this case, the ISA would have capital gains tax to protect. But the 36% fall over the past year (exacerbated by the virus sell-off) helps for another reason. Only a few weeks ago, the firm honoured its dividend commitment, when many other firms have done the opposite.
The share price fall increases the dividend yield if you buy at the lower price, and the dividend sits at around 13% currently. Given that there’s confidence the firm continuing to pay out dividends, this is a potential strong pick for income investors.
While we do need to be confident in the fundamental picture around the firm as well, a look into its finances does give some cause for optimism. It recently announced an additional £3.1bn worth of credit that lenders had made available. So even if we see sales sliding this year, the credit facility should be enough of a buffer. This can support the firm through any choppy waters in the near term.
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Jonathan Smith does not have shares in any firm mentioned. The Motley Fool UK has recommended Imperial Brands. 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.