The FTSE 100 has only lost a few percent in 2022. But there’s been a big shift in sentiment, away from anything deemed riskier and towards safer investments. As the stock market recovers, it seems likely we could see the opposite shift.
So what’s the best way to take advantage of that, if and when it happens? I’m looking for FTSE 100 companies that I think could benefit from any renewed investor bullishness. I think I’ve found three.
Investor sentiment
When investor sentiment is shifting, I reckon it can be a good time to invest in the mechanics of investing itself. I’m thinking of FTSE 100 investment management companies like M&G (LSE: MNG).
The share price is down 15% over the past 12 months, putting it on a forecast price-to-earnings (P/E) ratio of around 10.
The danger this year is that M&G will see profits falling due to investors withdrawing funds. And I think that’s pretty much inevitable in today’s market. But I expect they’ll come back when conditions improve, and this could give us a cheap buying opportunity now.
Meanwhile, the dividend yield looks set to beat last year’s 9.2%. If the dividend should dip, that could hit the shares. But M&G is in the middle of a share buyback, so it appears to have cash to spare.
Takeover specialist
Melrose (LSE: MRO) specialises in acquiring underperforming businesses, turning them around, and selling them.
Investors went off that idea when Covid struck, and the Melrose share price fell like a brick. The company is heavily into aerospace, after all. But it’s been picking up a bit in 2022.
There are clearly risks with this kind of business model. Given the time it can take to restructure a takeover target, profits are very erratic. That makes annual metrics like the P/E ratio largely useless.
I admit I don’t really know how to put a meaningful valuation on a company like Melrose. But it has cash to spare, and is currently on a £500m share buyback programme.
As conditions improve, I think new acquisition targets could show up. This one’s on my speculative list.
Advertising crunch
WPP (LSE: WPP) went through a troubled patch after the departure of founder Sir Martin Sorrell.
But after a pandemic slump, the WPP share price had been starting to pick up. Then the Russian invasion of Ukraine sent the shares into reverse again.
Advertising and marketing spend is one of the first areas to cut in tough times. And the global economic crisis has pushed it down in priority. It’s a tricky business to evaluate though, and we could see many more rocky months ahead.
But in good times, WPP’s services form an essential part of any business. With the stock on a forward P/E of around 10, I see it as a good buy for long-term investors.
Oh, and WPP has recently reported a new acquisition in Australia. Tough conditions like today’s can help companies with the cash to expand.