Yesterday, the FTSE 100 closed above 6,000. This was the first time that it reached this level since the stock market crash began in March’s second week. The index’s sharp, swift increase indicates that many FTSE 100 stocks have rebounded. Stocks that were earlier available at unbelievably low prices are now back close to their pre-crash levels.
As a result, if I have to invest £1,000 right now, I think the situation is more complex today than it was when the crash actually happened. I now need to sift through stocks more carefully.
What not to buy
For one thing, not all stocks are rising. Indeed, some have seen their fortunes turn for the worse. One of these is the FTSE 100 banking biggie, Lloyds Bank, which I’ve covered in detail in another article today. It’s share price through April has actually been lower than in March, and I’m not sure if it’s going to rise from here.
In fact, I’m of the view that banking stocks are avoidable at present. Earlier this week, HSBC posted poor financial results, and yesterday it was Barclays’s turn to do the same. This in addition to the fact that banks put a pause on dividends last month. In a nutshell, I’m not sure if it would be fruitful to buy banks’ shares right now. I think there will be plenty of opportunity to buy them at muted prices going forward, if the economy continues to remain dismal like it’s expected to.
FTSE 100 shares to buy for those with risk appetite
There are other cyclicals, however, which look more promising to me right now. One of these is the FTSE 100 retailer JD Sports Fashion, which has rebounded a fair bit but is still way below the highest levels seen in 2020. With the Covid-19 situation still precarious, lockdown having hit its revenue generation, and an expected economic slowdown, the coming times could be challenging for it. But I’m a believer in the stock, for a number of reasons, so I think in the long term it will pay off.
Similarly, the FTSE 100 low-cost airline easyJet has been through rough times recently, being among the most affected sectors. But I reckon that it will start getting back on track as economic activity returns. It might be longer before it’s performance turns around, but at its relatively low present price, it looks like a potentially good bet.
Limited risk and potential upside
But if I really don’t want to take on any risk in these difficult times, defensive stocks are still my best bet. It’s true that their share prices have run-up quite a bit. But if I believe in the business’s potential and the company’s ability to see it to fruition, its share price should ideally rise overtime. At the very least, it’s unlikely to fall dramatically. Consumer defensive FTSE 100 stock Diageo is one example. And there are many others, including pharmaceuticals and consumer staples, giving investors plenty of choice.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, Diageo, HSBC Holdings, and Lloyds Banking Group. 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.