Although the coronavirus pandemic has temporarily devastated economies around the world, every stock market crash produces bargain shares.
And many stocks in the FTSE 100 index are selling at attractive levels — assuming an economic recovery will lift share prices when economies recover.
Not all are FTSE 100 bargain shares
But I’m not pretending the world will look the same after the crisis as it did before. In every stock market crash, some businesses plunge so hard that they never recover. Usually, the most vulnerable are those firms with highly cyclical underlying enterprises.
In this crash, things don’t look so good for the travel industry or the hospitality sector. Take the restaurant and fast-food market, for example. It went into this crisis over-supplied and many eateries and restaurant chains were struggling with low volumes, debts and non-existent profits.
My guess is that even though many of the employees in the sector are furloughed now, a lot of food-serving businesses may never reopen their doors again. Or many will go bust in the new world we face of social-distancing and revised consumer habits. I for one have vowed not to eat out as much as I used to. Perhaps others will feel similarly.
This is a stock-picker’s market perhaps more than ever before in my investing lifetime. So it will likely pay to be very choosy about which sectors and shares you invest in now. Even Warren Buffett has ditched his holdings in airline companies. He doesn’t expect a bright immediate future for those firms at all. Things have changed. And maybe forever.
Stocks I am tempted to buy
In the FTSE 100, the crisis has thumped many cyclical stocks and some of them look appealing to me. For example, plumbing and heating supplies distributor Ferguson serves a resilient sector that I’m sure will come roaring back.
And with interest rates remaining at ultra-low levels, I reckon there’ll be no stopping the housebuilding sector, which leads me to Persimmon, Barratt Developments and Taylor Wimpey among others.
Then there are FTSE 100 companies that have a powerful economic advantage in their sectors but that are suffering massive short-term drops in revenue because of the lockdown. For example, Autotrader, Rightmove and, arguably, Next.
I also like the look of Associated British Foods, which has a defensive food ingredients business that has managed to keep trading through the crisis. But it also owns the fast-growing Primark chain of value clothing and accessories stores. Revenue from those stores has stopped because of lockdown, but it will build up again, and I reckon improving profits and revenues will lift the share price in the months and years ahead.
If you scan the stocks in the FTSE 100, I reckon you’ll be able to identify other potential bargain buys. And after doing your own research, some may tempt you to pick up a few shares. After you have, I reckon the key to becoming an ISA millionaire is to hold for the long term and compound your gains along the way.