The stock market crash has come and gone, but many FTSE 100 stocks are still quite vulnerable. Stocks of companies that were hardest hit by the lockdowns have become volatile, reacting sharply to incoming news. Examples include stocks like the FTSE 100 hospitality company InterContinental Hotels Group (LSE: IHG) and the travel company TUI.
Both companies will also, incidentally, release results this week. Share prices react sharply to results at any time. It’s particularly so right now at this volatile time for them. There are too many unknowns to contend with. The economy is still weak. And the world may have to be on guard against the spread of Covid-19 for some time to come. No one knows how long this situation lasts, which will continue to impact hospitality and travel the most. It may even result in another stock market crash.
On the path to recovery
In the case of IHG, however, I am optimistic. From the time I last covered the stock towards the end of June, until now, the share price has already risen by 9.2%. This has been helped by a somewhat positive trading update a few days later. Even though its financials were weak in the update, it was reopening its hotels at a fast clip. I reckon that there will be positives to note in its update tomorrow as well.
However, I think buying this stock isn’t without some risks. Selective lockdowns may continue to be imposed, as in Spain recently, which can make investors panic. Also, if the slowdown turns out to be a long, drawn out one, IHG will suffer, being a cyclical stock. I think there are safer FTSE 100 stocks available to invest in. They have good growth prospects and are affordable after the stock market crash, making them more suitable for more risk-averse investors.
Fall from grace
It’s a similar story for TUI, which fell out of the FTSE 100 set as its share price and relatedly, market capitalisation, dropped earlier this year. It was also the biggest faller when the quarantine for Spain was re-imposed late last month. I think it will be a while before it comes back to health, but there may be rewards for the patient investor in a few years. If you can take a risk, put money you are willing to lose in the stock, even if tomorrow’s update is more cheerful.
Safer bet in stock market crash
One relatively safe bet is Prudential, the FTSE 100 financial services company. Its share price has risen a fair bit since the stock market crash. Investors deem it desirable too, going by the high earnings ratio of over 40 times. I don’t expect any financial services firm to show robust growth or earnings during a recession, and that includes Prudential. But it may be optimistic in its outlook in tomorrow’s update, which can drive its share price. I think investors shouldn’t react to short-term news for this stock, however. There’s merit to PRU that long-term investors should consider.