The FTSE 100 has lost approximately 25% of its value due to the recent market crash. With the lockdown and social distancing still in effect, there are certain industries I want to avoid. I don’t feel comfortable about buying shares in an airline or cruise company when operations are suspended right now.
An industry I feel may present an opportunity is utilities. There are some interesting utilities companies listed on the FTSE 100. Two that have fallen since start February are Centrica (LSE:CNA) and National Grid (LSE:NG). But I’d only buy one of them.
One to avoid?
The market crash has been catastrophic for British Gas owner Centrica. Between the middle of February to date, it has seen near 60% of its share price value disappear. If I go back to the beginning of the year, that figure climbs up to near 65%.
Like most businesses, it provided a trading update along with an insight into Covid-19 and its impact during the current market crash. The update, in early April, confirmed that the pandemic is expected to impact revenues. It has decided to remove its guidance on 2020 results. To add to this, it also decided to cancel its final dividend. This is a disappointing blow to investors as prior to this, Centrica was a stock with a double-digit yield.
Longer term, the picture is not so great either in my opinion. The last two years have been disappointing in terms of revenue with declining levels each year. 2019 was also a loss-making year, which is never a great sign for investors.
With lower than ever commodity prices from the falling natural gas prices, affecting the energy sector could there be more woes ahead? For me, I would look to avoid Centrica at all costs during this market crash. There are too many issues coupled with poor performance and market conditions it cannot control so it’s a no from me.
A market crash opportunity
National Grid possesses a somewhat unrivalled economic moat and a great competitive advantage. It owns the pipes and power lines that transmit gas and electricity directly to people’s homes. National Grid for me has great defensive qualities as a key infrastructure operator in the UK.
The crash saw near 25% wiped off its share price value between mid-February and the market bottom of March 23. The share price closed at 799p on that day. At the time of writing, it has recovered somewhat to over 930p per share.
A pre-close update provided on the April 2 advised that NG will be publishing full year results in mid-June. There was also mention of limited impact to financial performance due to Covid-19.
It didn’t confirm whether or not it would be paying its final dividend, but that doesn’t concern me. I’m more interested in its strong balance sheet and £5.5bn of undrawn bank facilities. These will provide it with plenty of cover against any downturn that could still occur.
National Grid falls into my buy category due to its healthy position, as well its economic moat. Even at the current price, it’s cheaper than pre-crash levels, although it’s climbing quicker than some of its FTSE 100 competitors.