I’ve been searching the FTSE 100 index for bargains, armed with my refreshed Stocks and Shares ISA allowance of £20,000.
I see two types of potential bargains in the current crisis. Firstly, there are those companies with operations largely unaffected by the economic shutdown. Sometimes such defensive firms have seen their share prices marked down by the market regardless.
Secondly, there are those companies that have seen their businesses greatly affected. Those stocks have fallen a long way. But I reckon there are decent opportunities among both types of share.
Pharmaceuticals
GlaxoSmithKline (LSE: GSK) strikes me as a good example of a firm operating in a defensive sector that’s likely to be less affected by the crisis.
On Tuesday, the company released an update describing a proposed collaboration with Sanofi to “fight Covid-19.” The idea is the two firms will combine their “innovative” technologies to develop an “adjuvanted” vaccine for the disease.
They expect their candidate vaccine to enter clinical trials in the second half of 2020. If it works, the vaccine will likely be available for use around a year later
Meanwhile, it’s hard for me to imagine the demand for GlaxoSmithKline’s medicines and treatments drying up. My guess is that people will keep using their medication regardless of the pandemic. Indeed, the company has a decent multi-year record of steady and rising cash flow, which looks set to continue.
I see the recent weakness in the share price as an opportunity to pick up some of the stock on better terms.
Plumbing and heating products
Plumbing and heating products supplier Ferguson (LSE: FERG) updated the market on 17 March with its half-year results report. The company said then that it was too early to understand how the unfolding coronavirus crisis would affect trading.
But the stock market has made its own judgement. At 5,188p, the share price is more than 30% down from the level it achieved in mid-February. And that’s after bouncing back a fair bit during March.
I’m optimistic about Ferguson’s business. After the recession following the credit crunch and financial crisis just over a decade ago, the company’s operations recovered well and expansion continued. I think the firm serves a resilient sector and is doing a good job of consolidating a fragmented industry.
In the report, the directors expressed an optimistic outlook for the long-term success of the company. I think the stock could make a decent vehicle for riding the recovery after this crisis, just as it did after the last one.
Finally, I promised three FTSE 100 bargains in this article’s headline. And my third choice is the index itself. Because the FTSE 100 is packed with the shares of cyclical companies, I reckon it has good bounce-back potential. So I reckon a FTSE 100 index tracker fund is an attractive proposition right now.