The FTSE 100 has been rocked by the coronavirus outbreak. Year-to-date, the index has dropped by 24%. Companies are still dealing with the uncertainty of how the virus will impact trade. However, there are signs of a recovery, with the main index rising by 6% so far this month.
I think these two companies could have good long-term prospects for investors with some spare cash.
Undervalued FTSE 100 stock?
Morrisons (LSE: MRW) share price is down by 7% year-to-date, making its price-to-earnings ratio approximately 13. For recovery prospects, it means now could be a great time to buy this FTSE 100 stock.
The last few months have seen a huge shift in customer behaviour, with social distancing rules meaning more people are utilising online delivery services for their grocery shopping.
In its preliminary results, released in March, Morrisons noted that its revenue was down 1.1%. However, profit before tax and exceptionals was up by 3% to £408m. It also reported that during the start of 2020, sales had been on an improving trend.
Although Morrisons is the smallest of the big four supermarkets in the UK, I believe its recent tie-up with Amazon might give the larger chains a run for their money in the future. Amazon Prime customers can now purchase Morrisons own-brand items for same-day delivery. If social distancing continues for a long time, like some are predicting, this could help Morrisons gain market share.
It should be noted that to protect cash-flow during the coronavirus outbreak, Morrisons is not paying its final special dividend. Although this might disappoint FTSE 100 income investors, these are uncertain times, and I believe this was the right thing to do if it protects the business. Its full-year dividend for 2019–20 was 8.77p.
If Morrisons can strengthen its own online sales platform in addition to its relationship with Amazon, I think the company’s shares will be worth buying now.
Although Ocado (LSE: ODCO) is yet to turn a profit, the company is a world leader in online grocery shopping. Year-to-date, its share price has grown by 27%, which shows the business is far out-pacing the FTSE 100 index.
The business announced in March that its revenue had grown by 10.3% in Q1. It also announced that growth in Q2 was so far double that of Q1. This growth almost certainly contains an element of forward buying, which Ocado expects to unwind in the future.
Unsurprisingly, this uptick in demand put strains on Ocado’s infrastructure, with the temporary closure of the app, stopping new customers registering, and a new queueing system to cope with the massive increase in web traffic.
Outside of the coronavirus outbreak, Ocado has reported that preparations from the switchover from Waitrose to M&S are progressing well and on track to be implemented by this September.
With prospects for Ocado looking good, now could be a great time for growth investors to buy shares.
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T Sligo has no position in any of the shares mentioned. 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 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.