The market is now experiencing a correction, with the FTSE 100 falling by 1,000 points since the start of 2020. I think now is the time for investors to focus on building a resilient portfolio that could limit their risk to any unnecessary loss.
The extraordinary moves in the global stock market matter not just because of the uncertainty about the response of how the government could react economically, but the impact on your Stocks and Shares ISA, too!
Strategic risk
Investing in the FTSE 100 could come with some risks, no doubt. It may be plausible to assume the market could continue to fall, as I think investors have limited confidence in the government’s ability to support the economy through this coronavirus epidemic.
That may leave you questioning, what is the best alternative?
I believe the best place for you to look at is the governmental funding of public projects. This sector remains a growth industry during a recession with the intent to stimulate the economy.
For example, the company that sources its revenue from government contracting could help reduce its dependency on the private sector. Therefore, I think risk to market exposure could be minimised, and the stock may be a lot more resilient.
On the fast track
Kier (LSE: KIE) is a construction company with a market cap of £160m. It is contracted to build the HS2 high-speed rail enterprise, bringing in £250m of revenue per annum over the next six years.
A previous article explaining why Kier could do well financially was one step ahead of the market. Kier’s share price jumped up by 30%, from 100p per share, on March 4th, to 130p a day later. The rise in share price was a result of half-year results being better than expected.
Despite its past struggles, I think Kier seems to be turning itself around. The market wants to see that expenses, as well as debt, are under control. In my opinion, Kier is making all the right sounds with its improved balance sheet.
The introduction of its cost-cutting programme is expected to reduce inefficient costs of up to £65 million. Meanwhile, the company’s underlying pre-tax margin grew from 1.5% to 1.7%, at the end of this year.
I think the announcement of work across an 80km section of the new high-speed rail link could present long-term benefits for Kier.
Just over 65% of Kier’s construction work is sourced through long-term frameworks. I think this is a clear indicator of the company’s success.
In my opinion, the near-certain generation of cash sourced from public construction projects could improve the earnings outlook for Kier in a time where private construction starts to dry up.
Long-term investment
Tax-free returns from stocks held in an ISA, with a threshold of £20k each year, could be an excellent time for you to use this year’s allowance.
In my opinion, holding Kier is investing in a long-term view. Buying bargains now could pay off when signs emerge that the worst of the coronavirus is still to come. When that happens, you could be holding a high-quality share.