The FTSE 100 has slumped due to fears over the coronavirus pandemic. The index has fallen by about 21%, year-to-date (YTD), as analysts try to determine the impact the virus will have on the economy.
However, there could be signs of a recovery, with the FTSE 100 rebounding by 19% since 23 March. Have value investors left it too late to buy cheap shares in quality companies?
The market now seems to be optimistic that things are slowly turning back to normal. However, I think there is still an opportunity for value investors to buy cheap FTSE 100 shares.
The Lloyds (LSE: LLOY) share price has been hit hard recently. YTD, its price has slumped by 52%, to 30p. Looking back at the previous five years, its value has dropped by 66%. Lloyds shareholders are familiar with these slumps in price, though none has been as bleak as this.
In fairness, most banks have been hit particularly hard due to the coronavirus. Low interest rates and anticipated bad loans will be likely to hit revenue and profitability across the board. Lloyds competitors’ share prices have also been badly affected, with HSBC’s dropping by 30% and Barclays by 45% YTD. In a turbulent market, the lack of an investment banking arm is a disadvantage to Lloyds.
Lloyds has taken steps to shore up its capital and recently announced the cancellation of 2019’s final dividend. The bank will also not undertake any dividend payments or share buybacks on ordinary shares until the end of 2020.
My Fool colleague Rupert Hargreaves notes that the Lloyds share price appears to be trading at a lower value than it was during the depths of the 2008 financial crisis. In my view, this is unjustified, as Lloyds headed into the coronavirus outbreak in a much stronger position than it was in previously.
As its share price has slumped substantially, the bank is currently trading at a price-to-earnings ratio of 9. For FTSE 100 value investors, I believe now could be a great time to buy Lloyds shares for the long term.
Defensive FTSE 100 stock
Although the Reckitt Benckiser (LSE: RB) share price has climbed by about 9% YTD, I think it is still a company that should be on long-term investors’ radars.
I believe customers will be purchasing products from its portfolio of low-cost brands, such as Dettol, Veet, and Nurofen, even in times of economic struggles.
The business noted recently it expects 2020 to be better than forecast. Unsurprisingly, this is due to an increased demand for its health and hygiene products. It is yet to be seen if this demand will subside as stockpiling lessens.
It might be tempting to view Reckitt Benckiser as a company to buy now and sell in the short term. A coronavirus vaccine could be some way off, meaning hygiene products are likely to be in demand for some time.
However, this is a quality company that I would buy and hold, as I believe its products will always be needed in homes around the world, even when the coronavirus crisis is behind us.
The FTSE 100 is likely to remain turbulent for some time. That’s why picking defensive consumer stocks for your portfolio now could be a wise strategy.
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The Motley Fool UK has recommended Barclays, 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.