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Why I’d invest in the FTSE 100’s Next for the stock market recovery

Image: Next: Fair use

It’s a good idea to buy shares in FTSE 100 and other companies and act as if you are a part-owner of that business. If you are in shares for the long haul, you can share in the firm’s future profits and growth.  And an approach like that can lead to great returns from the stock market over time.

A business perspective can pay handsomely

You only need look at the results generated by some of the world’s wealthiest business owners and investors to see the wisdom in buying and holding part ownership in great businesses. I’m thinking of names such as Bill Gates, Jeff Bezos, Warren Buffett and Richard Branson. Those guys have held on to their best stocks and businesses for decades – and it hasn’t done their bank accounts any harm at all!

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When it comes to great companies with strong underlying businesses, I think we have a decent example in the FTSE 100’s Next (LSE: NXT), the multinational clothing, footwear and home products retailer. The firm issued an update today about how it’s coping during the coronavirus crisis. And the comprehensive explanations about actions, strategies and tactics are wonderful.

I reckon Next is inviting us to be participating part-business-owners. When I read the update, it feels like being present in the boardroom as the top directors discuss progress. And the firm’s pro-investor stance helps me trust it.

Of course, I already knew that Next owns a popular brand and has an impressive record of trading and finances. The firm’s two-pronged approach has worked well. It balances conventional store sales with online revenue. And the company has been good at sharing its prosperity with shareholders via dividends and share buy-backs.

Dire figures, but set to recover

Meanwhile, today’s trading figures are dire, as we might expect. The directors said in the report the retail sector has slowed “faster and more steeply” than they expected even as recently as March.  Indeed, full-price product sales from 26 January to 25 April were down 41% overall, with Retail plunging 52% and Online crashing down by 32%. However, the share price has barely moved on the news, suggesting the stock market has already adjusted the price for poor short-term trading.

And, as so often happens, it looks like the market over-reacted to start with. When the stock market crash happened, Next dropped as low as about 3,390p per share. Now, the price stands near 4,709p, so there’s been a significant bounce-back.

Now it’s time for me to invest in Next for the long haul. The visibility in today’s update gives me confidence that the Next management team is doing everything it can to rebuild the business as we move from lockdown to a world characterised by ongoing social-distancing where we live daily with the reality of coronavirus.

In summary, Next isn’t expecting a return to the ‘normal’ we had BC (Before Coronavirus). Business will be difficult and challenging. Revenues and profits will be lower. But I’m tempted to hop aboard the recovery story now as a well-briefed and engaged part-owner of the business. I’d buy some of the shares right now.  

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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