Investors starting out with £5,000 today could be in for a treat. With the FTSE 100 down 20% since the Covid-19 pandemic hit, I see bargain shares galore. Since March’s bottom, the index has actually regained around 20%. If you’d hit the low, you’d already be doing well.
There’s still great uncertainty, so where the Footsie will go in the coming months is anybody’s guess. But I’m confident that, over the long term, shares will continue heading on upwards. So what could you buy with £5,000 today?
You could look for the most resilient companies, those that haven’t been hammered. Warren Buffett seeks great firms at fair prices. Then there’s his famous rule: “Never lose money.” Couple those and you should be on your way to a nicely defensive strategy.
Don’t lose the £5,000
Companies offering essential goods and services would be among my defensive targets. Tesco is an essential food supplier, and there are lengthy queues outside its branches. The share price has dipped a little, down 7%, but that’s robust in the circumstances. I generally don’t go for supermarkets, due to the intense competition. But there’s no denying Tesco shareholders are sitting prettier than Lloyds Banking Group shareholders.
So how about looking among the big fallers for oversold shares too? Lloyds has been out of favour for the past few years, and the coronavirus hasn’t helped. The shares are down 40% in the crisis, but is that too far? Well, they’ve come back 20% since lows at the beginning of April, so some folks think so.
There’s no Lloyds dividend right now, but I feel sure it’ll be resumed. I’d put the second slice of of my £5,000 into Lloyds shares.
Getting back to essentials, I’ve always been bullish about National Grid. I’m wary of its highly-regulated and politically-risky status, but it’s been a cash cow for decades. Energy is, obviously, an essential, and the sector’s holding up. Right now, domestic consumption will have risen, though industrial usage will have dropped significantly.
But there’s been only a relatively modest impact on the National Grid share price. It’s down around 11%, as I write, and I think it’s a buy. That’s another chunk of my £5,000 accounted for.
Then there are those seriously long-term investments, the pharmaceuticals. AstraZeneca shares are actually up 9%, presumably on coronavirus vaccine hopes. GlaxoSmithKline shares though, are only up 2%. But that’s not why I’d buy one of then. No, I’d buy for those strong drug development pipelines, which should help keep the cash rolling in over the coming decades.
Best of both?
When choosing companies providing essentials, or ones that are unfairly depressed, why not combine the two? I’m thinking of housebuilder Taylor Wimpey, which has lost a third of its value. That does hide one of the biggest rebounds, mind, with Taylor Wimpey shares up 50% from their recent low. Still good value? I think so.
But essential? Buying a new home right now is far from essential, sure. Close to impossible, in fact. But over the long term, yes, I see housebuilding as an essential industry.
So, I’d add Taylor Wimpey, plus one of the big two pharmas, and split the £5,000 five ways. Job done.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Lloyds Banking Group and Tesco. 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.