These are perplexing times for FTSE 100 investors. Market confidence remains fragile as the world slowly lifts itself out of harsh quarantine measures. The economic destruction that Covid-19 has already caused continues to confound City thinking too. And the threat of another deadly wave of infections later in 2020 is dominating investor mindsets.
A haze has settled over UK plc, which makes it nigh-on impossible to guide on near-term earnings. As Rachel Winter, associate investment director at Killik & Co, comments: “We’re now over halfway through reporting season and one of the most notable takeaways so far is the high number of companies that have withdrawn their guidance on expected earnings for this year.”
Unpredictability over when lockdown measures will be repealed “makes it almost impossible for these companies to predict future earnings,” Winter adds. And this lack of guidance “makes it difficult to value these businesses.”
Profits questions
It’s clear that valuing FTSE 100 stocks based on 2020 earnings is a risky endeavour. The social, economic and political implications of the coronavirus will be without parallel, certainly in modern times. Even those firms that have not withdrawn their full-year estimates face the prospect of changing or pulling their guidance later in the year.
Clearly share investors need to be more careful than usual. Firms of all shapes and sizes are running out of cash and profits are evaporating as the lockdown endures. Corporate failures will balloon long before governments and scientists finally get the coronavirus in a headlock.
But that’s not to say that Footsie investors — or indeed share pickers looking to invest lower down on the London stock market — should stop searching for great companies to load into their stocks portfolios. The key to successful share investing is, of course, to buy shares with a view to holding them for a minimum of five years. For many businesses with a solid financial base, the troubles of 2020 will likely represent nothing more than a blip in their long-term investment story.
One of my FTSE 100 favourites
Let’s look at the performance of FTSE 100 colossus Ashtead Group (LSE: AHT) as an example. Let’s say you’d bought shares in the construction equipment provider at the turn of the century.
This is a period blighted by the bursting of the ‘dotcom bubble’, the Goldman Sachs collapse and the global banking crisis, and more recently the outbreak of Covid-19. Despite these troubles, Ashtead has gained a staggering 2,500% in value over the period. The total return is even bigger when you take into account dividends paid over the past two decades.
Ashtead is a FTSE 100 firm I believe has a very bright future ahead of it too. It’s why I continue to cling to my shares in the business despite questions over near-term profitability. Its balance sheet is rock solid, and the fruits of an aggressive M&A strategy leave it in great shape to exploit the eventual upturn in the global economy. It’s just one of many British blue-chips that appear brilliant buys following share price declines of recent weeks.
