Today is turning out to be a very bad day for the FTSE 100 index, indeed. It has fallen to its lowest level in more than half a year. While trading is still in progress as I write, I doubt if the end-of-day levels will be very different from its sub-5,600 reading right now. The index was last at these levels in early April, just a few weeks after the spectacular stock market crash in March. But we’ve learnt much since, and I think there’s a lot to unpack in this one number today. Here are a few things that come to my mind.
A stock market crash is a buying opportunity
One, I think with the benefit of hindsight we can confidently say that it’s not a catastrophe. If anything, it’s an opportunity that we at the Motley Fool have emphasised over and over. Soon after the crash, the index started making steady gains again. The biggest gainers were stocks that have benefited from the lockdown as expected and vice-versa. If the gainers have become too pricey to fit into your investment style now, I suggest that it’s a good idea to look at them again.
There are at least three stocks I like, which are at least 4% down today. These are Johnson Matthey, JD Sports Fashion and Smith & Nephew in the order of decline so far. Johnson Matthey, which among other things, is now producing components for electric vehicles’ batteries, saw a strong share price comeback following the stock market crash. I reckon it will start rising soon. JD Sports Fashion has doubled its share price since the crash. Smith & Nephew suffered too, as elective surgeries dwindled in the lockdown. But with ageing populations, demand for its hip and knee replacement devices will grow over time.
Markets pick the winners
Two, the latest decline is a ‘slow burn’ compared to the sharp stock market crash of March, where the FTSE 100 index fell more than 10% in a day. On average, the index has lost value month on month since July. In some sense, the market is doing investors a favour by picking out winners for them. I’m taking a close look at stocks that have thrived in this time and that can continue to do so in the next two to three years. My vote goes to the likes of Ocado and Rightmove. Both are pricey right now, but they are also in the high-growth, e-commerce sector.
A time for contrarian stocks
Three, I think that we can make some judicious contrarian buys too, now. Stocks in hospitality, travel, tourism and related industries have taken quite the beating. But their stock prices have dropped to such ridiculous lows, that investing an amount I’m prepared to lose is becoming a less risky decision by the day. IAG is an example of such a share, especially today.