There’s no need to be scared of a second 2020 stock market crash. In fact, while your portfolio of FTSE 100 shares might suffer in the short term, it actually bodes well for the future.
Buying cheap FTSE 100 shares when the market undervalues them is one of the best ways to profit long term, in my opinion.
No fear of stock market crash
As a committed value investor, I follow Benjamin Graham’s philosophy of “buying from pessimists and selling to optimists“. With the FTSE 100 dipping under 6,000 and fears of another stock market crash rising. there is significant pessimism out there.
But when you’re a long-term investor, you must consider future trends. And there are two I’ll talk about today. Firstly, given everything we’ve seen with Covid-19, healthcare budgets will skyrocket over the next 20 years. And second is the mass switch to online retail.
GSK’s defensive characteristics make it one of my favourite FTSE 100 shares, especially with thoughts turning to another stock market crash.
There are few cheap FTSE 100 shares that offer not just solid income, but also value and growth potential at the same time. GlaxoSmithKline (LSE:GSK) is one of them.
GSK has an growing pipeline of branded drugs that gives it a cast-iron economic moat. Just recently, the UK government signed a deal with GSK and French biotech Sanofi to secure up to 60m doses of their experimental coronavirus vaccine.
It is healthcare giants like these that will win the support — and huge cash contracts — from governments going forward.
Unlike FTSE 100 shares that crashed hard in March, GlaxoSmithKline only suffered a loss of around 22% of its value, and rebounded quickly.
Today it trades on a low price-to-earnings ratio of just 12 times, comfortably below the FTSE 100 average of 14.4. And that rock-solid dividend yield is now approaching a hefty 5.3%. Again, this knocks the FTSE 100 average yield of 2.73% into a cocked hat.
The next quarterly payment is due on 8 October 2020, and goes ex-dividend on 13 August. That gives investors a little breathing room to think about their purchase. But I wouldn’t wait.
Besides a pandemic and the worst stock market crash in a generation, 2020 has been the year everyone realised they could save money and work from home. With most big companies rethinking their vast office spend and allowing more people to work remotely, I see the DIY boom as a multiyear trend.
Millions more will build a home office in the garden, or just refurbish their home as a place to relax and work, too.
And Kingfisher (LSE:KGF), recently promoted to the list of FTSE 100 shares, has made strong gains since the last stock market crash. Today’s share price eclipses its position pre-Covid-19, and how many companies can say that, at a time of historic economic concern?
Even now, the Kingfisher share price is trading at a P/E ratio of 12.8, making it a bargain in my view.
One 2019 report by Retail Economics predicted over half of all retail sales would be online in 10 years time. But the pandemic has vastly accelerated that trend. So the success of retail depends on a solid online offering.
Kingfisher reported in a recent Q2 trading update that sales were up 21.8%, but more importantly that online sales rocketed more than 200% each week in June.
I see this continuing long into the future – far beyond another potential stock market crash.
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TomRodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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.