As the global economic recovery continues, I’ve been looking for FTSE 100 recovery stocks to add to my portfolio. Here are two companies I’d buy today.
FTSE 100 recovery
The economic fallout from the pandemic has severely impacted real estate investment trust (REIT) Landsec (LSE: LAND). The landlord has struggled to collect rents from its retail and office tenants. As a result, the value of its portfolio has also declined.
These twin headwinds have devastated the company’s balance sheet and profitability, and investors have rushed to sell the shares.
Between the middle of February and the end of October last year, shares in the FTSE 100 company lost nearly 50% of their value.
Today, shares in the REIT are still down around 26% from their year-end 2019 level. However, I think this could be an opportunity. As the economy reopens, customers are returning to stores and workers to offices.
Landsec’s rent collection is also improving. The company collected 67% of rents by the 25 March payment date this year, which was up from last year’s figure of 60%.
This wasn’t a vast improvement, but I think it shows the company is heading in the right direction. I’m expecting a further improvement in rent collection figures in the next few quarters.
The biggest challenge the company now faces is collecting outstanding rents. Unfortunately, it’s also susceptible to another wave of coronavirus. Such a development could further impact its property portfolio, which may send the share price plunging (again).
Despite this risk, I’d buy the FTSE 100 company for my portfolio of recovery stocks as the economy reopens.
Turnaround in process
Over the past five years or so, this company has been in the midst of a transition. The educational group has been trying to move its offering online, away from costly textbooks, where sales have been falling.
The coronavirus pandemic has only accelerated this strategy. The company’s latest trading update tells the story. Its global online learning business reported sales growth of 25% for the first quarter of 2020, the best performance of all the group’s divisions. Total revenues across the enterprise rose by 5%.
This performance is even more impressive considering the company has been grappling with school and university closures, as well as exam cancellations.
As the world starts to move on from the pandemic, I think this trend can continue. Pearson’s online business should continue to grow, and a more normal programme of exams will help its other divisions.
The company still faces some of the issues that have hampered growth over the past few years. These include competition in the educational materials market and the high cost of materials, which has pushed some students to reuse or share products. A lacklustre economic recovery may also push down demand for educational training.
Still, I’d buy the FTSE 100 company as a recovery play for my portfolio, despite these risks and challenges.
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Rupert Hargreaves owns shares in Landsec. The Motley Fool UK has recommended Landsec and Pearson. 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.