The FTSE 100 slumped 168 points (2.4%) on Monday, dubbed ‘Freedom Day’ as most UK Covid-19 restrictions were lifted. Investor confidence appears to have been shaken by soaring infection counts and fears of a serious new wave. The panic spread worldwide too, with the Dow Jones in the USA losing 2%. But the fall must surely have thrown up some attractive buys.
ITV (LSE: ITV) suffered the hardest hit of the day, with a whopping 6.6% share price crunch. The stock has still put in a dramatic recovery since the worst of 2020, with the shares up 69% over the past 12 months, even after Monday’s fall.
But over two years, we’re looking at a modest 3% gain, and ITV shares are nowhere near the pre-pandemic peak they reached in December 2019. So is ITV a long-term buy? For those who think there’s a recovery on the cards, it might well be an even better buy today. I do reckon we see a company that’s better structured now, and in less uncertain times, I’m almost sure I’d rate ITV a buy.
But the big risk is that ITV, heavily dependent on sports and advertising, could head south again if we suffer another Covid resurgence. And all three companies I’m looking at today share that risk.
The second is long-suffering Rolls-Royce (LSE: RR), battered by a 6.5% slump on Monday. If any FTSE 100 stock is held hostage to the coronavirus pandemic and its devastating effect on air travel, this has to be the one.
Unlike many others that crashed, Rolls has not enjoyed any kind of sustainable recovery. There was a brief peak in November, but that soon reversed. Rolls-Royce shares are down a painful 70% over the past two years, while the index has lost just 7%.
But do Freedom Day fears really make any difference to Rolls as an investment? I’d say no in one way, but yes in another. The no is due to my belief that Rolls-Royce is fundamentally a well-managed company with a healthy long-term future ahead of it. The yes is down to the company’s financial situation in the medium term. Should it need to seek more cash, through equity or debt, I reckon that could drive the share price way down again.
Prolonged FTSE 100 weakness
Lloyds Banking Group (LSE: LLOY), which fell 4.9% fall on Monday, faces risk in a different way. I own Lloyds, and I’m holding for the long term dividend stream that I see coming in the years ahead.
But how Lloyds fares in the UK economic climate over the next few years will be crucial. Just a few days before the lifting of restrictions, UK cases climbed above 50,000 per day for the first time since January. The UK’s chief medical office has even been speaking of “scary numbers“. So there’s definitely some serious economic risk here.
Of these three FTSE 100 stocks, I see Lloyds as probably the least risky now. That’s essentially because its balance sheet is strong, and it should be able to handle any short-term crisis well enough. And I still expect to see healthy dividend growth resuming in 2021. The other two leave me in two minds. But if I had my next investment instalment ready now, I could be tempted by either.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended ITV 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.