The stock market crash provides an investment opportunity that only comes around every 25 years or so. The panic that accompanied the Covid-19 outbreak saw great FTSE 100 shares sold off along with more vulnerable UK shares. As a consequence I can nip in and grab some of these oversold beauties at ultra-low cost.
2 FTSE 100 fallers
2020 hasn’t been kind to a broad range of FTSE 100 stocks. Here are a couple which have endured big share price drops since January 1:
- The Diageo share price has suffered a 17% fall in 2020. Why, you ask? Well with the world’s bars, restaurants and pubs closing, demand for the FTSE 100 firm’s products from the hospitality sector has tanked. Does it cast a shadow over the drinks giant’s long-term profits outlook though? Not at all. Diageo’s mighty labels like Guinness, Smirnoff and Captain Morgan; its huge emerging market exposure; and its massive investment in fast-growing areas like premium drinks should deliver titanic profits in the years ahead, I feel.
- I’m not thinking of buying NatWest Group for my Stocks and Shares ISA though. The FTSE 100 bank’s halved in value in 2020 but this represents no attractive dip-buying opportunity in my book. The Covid-19 outbreak has been particularly cruel to the UK economy, and NatWest recorded a whopping £2.9bn worth of impairments in the first half. And it faces a second wave of colossal charges for the remainder of 2020 as infection rates rocket again across the land. October composite PMI data shows that the pace of economic growth is the weakest since the recovery from the first coronavirus lockdown. I’d expect revenues to struggle and bad loans to detonate.
Top stocks, low valuations
Why take a risk with NatWest when there are so many other top dip-buys for FTSE 100 investors? The following two UK shares, for instance, also trade on rock-bottom forward price-to-earnings (P/E) ratios of below 10 times:
- Prudential shares have fallen 25% in 2020, presenting a brilliant dip-buying opportunity for the longnter, I feel. Covid-19 threatens to damage product demand in the near term. But further out its profits outlook remains quite exciting. Emerging markets are under-penetrated in developing regions, and operators with colossal scale like ‘The Pru’ have the brand power and the scale to capitalise on surging wealth levels in these territories. Today the insurance giant trades on a P/E ratio of just 9 times for this year, making it a top value buy on paper.
- Aviva also looks to be a steal to me, following its 33% share price drop since January 1. Not only does its forward P/E ratio of 6 times look more appealing than that of fellow life insurance play Prudential. This FTSE 100 company sports a whopping 10% dividend yield for 2020 as well. I’m excited by how large dividends will be beyond this year too as likely asset sales will give the balance sheet a huge boost. And I think Aviva’s huge investment in digitalisation should give long-term earnings a shot in the arm.
Royston Wild owns shares of Diageo and Prudential. The Motley Fool UK has recommended Diageo and Prudential. 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.