Yes, now is a good time to invest in FTSE 100 shares. However, following the coronavirus market crash, investors may still have doubts about putting their money in stocks and shares. What is stopping investors might be a fear that the market will crash again, after showing signs of a recovery.
It might. However, if the market does fall further, already cheap yet quality stocks will get even less expensive, and the long term rewards will get even greater. Despite knowing this, stepping into the market may still be a challenge. My suggestion then is to look for cheap defensive stocks that may not collapse as much should the market crash again, and scale into them.
Tentative investors might want to avoid riskier stocks, even if the rewards are potentially higher.
HSBC told investors today that profits for the first quarter of 2020 were half what they were a year ago. Now, this is mostly the result of making abnormal provisions for bad debts during the coronavirus outbreak. Insurers, like Hiscox, are facing higher potential claims on travel insurance and business interruption policies. Banks and insurers have come under regulatory pressure to cut dividends, and a lot have done so.
The longer the outbreak goes on, the worse it will get for profits for banks and insurers. More companies will start to struggle to find the cash for interest payments, making bad debt provisions a reality. As companies fail, supply relationships are not just interrupted but broken, and it’s not just banks that don’t get paid but other companies who then may struggle to pay the banks.
FTSE 100 shares in travel companies, pub and restaurant operators, oil majors and retail businesses could also be riskier right now.
Two companies that I favour are RELX and Halma. I like RELX because it publishes information that scientists and researchers need to do their work and offers analytics that businesses use to make decisions. RELX’s events business, worth 16% of revenues, has collapsed, but the rest has seen minimal disruption so far. RELX refinanced its debt recently, at favourable rates, which is a testament to its perceived creditworthiness.
Halma produces health and safety equipment and systems. Most of its businesses were deemed critical and not shut down. Halma has manageable debt, incurred to make acquisitions. These will stop for now, but I expect Halma to snap up troubled businesses on the cheap once the crisis ends.
Unilever is also a good bet for nervous investors. People are spending more time at home cooking which is good for the company even if they are spending a little less on grooming products. Unilever is also prioritising value-for-money brands, which is vital as budgets come under stress.
Safer FTSE 100 investing
I don’t want to suggest that all banks, insurers, retail, and energy stocks are dead. Some may outperform when a bull market finally starts, assuming they survive. But share prices are likely to be volatile, especially on the downside, and more so if the coronavirus outbreak takes longer than expected to control.
If the fear of a further market crash is keeping investors away, perhaps looking at some cheap yet defensive stocks might tempt them back. Investing always carries risk, but defensive stocks typically react less violently to market moves. Scaling into stocks with a regular investment plan will also be beneficial.
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James J. McCombie owns shares in Halma, RELX, and Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Halma, HSBC Holdings, and RELX. 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.