The daily news regarding the resurgence of Covid-19 spooked the markets this week. However, the FTSE 100 index staged a remarkable snap-back rally on Tuesday and Wednesday. But we may see further volatility ahead.
Meanwhile, lurches in the market can hint at which businesses are vulnerable to any future economic downturn. To me, a stock that’s been holding up well through the volatility may be worth exploring.
2 FTSE 100 shares I’d buy now
I admit the measure is crude and doesn’t stand up to scrutiny on its own. But if my search leads me to a resilient underlying business, I’m inclined to become interested in the stock.
For example, pharmaceutical giant AstraZeneca (LSE: AZN) displays some impressive quality indicators. The operating margin runs just above 21%. And the company has delivered double-digit percentage returns against equity and invested capital.
There’s also a multi-year record of generally rising operating cash inflow. And that’s been supporting the company’s earnings. On top of that, AstraZeneca has been paying steady shareholder dividends.
Looking ahead, City analysts expect earnings to rise by somewhere between 100% and 200% this year. And three-figure gains are rare in the FTSE 100. Even in 2022, the anticipated uplift in earnings is almost 30%. The firm’s R&D efforts of the past few years are paying off. Indeed, new medicines and products have been climbing the best-seller tables for some time.
On top of that, the news feed from AstraZeneca’s vibrant. And a constant flow of announcements suggests the firm’s growth engine is at full throttle. However, there’s no guarantee the operational momentum will continue. And analysts’ assumptions could prove to be incorrect. If growth in earnings tails off, the forward-looking earnings multiple near 17 could contract. And that could lead to a losing investment in the shares.
But I’m inclined to embrace the risks and make the stock a long-term hold in my portfolio.
Investment for growth is paying off
I’m also considering paper-based packaging products specialist Smurfit Kappa (LSE: SKG). Like AstraZeneca, the business scores well against quality indicators and has a decent record of cash generation supporting its dividend policy.
On 30 April, the company delivered its first-quarter trading statement. And the business had been trading well. Chief executive Tony Smurfit said a strong performance in the first three months of the year “set the foundation for accelerated revenue and earnings growth” for the rest of 2021.
Meanwhile, City analysts expect earnings to increase by a mid-single-digit percentage this year. However, in 2022, the company looks set to reap some of the benefits of its recent investments into growth projects. And the assumption from analysts is that earnings will climb by around 16%.
However, with the share price near 4,026p, the forward-looking earnings multiple just below 16 suggests the valuation is up with events.
Smurfit Kappa isn’t a cheap stock. And there are some risks with that situation if earnings growth slips. However, I’m researching the opportunity and aim to hold for at least five years. We’ll find out more about underlying progress with the firm’s half-year results report due on 28 July.
