FTSE 100 shares remain volatile and under pressure. Part of the reason for this is a complex situation in bond markets that became a risk to the country’s financial stability.
The Bank of England stepped in to stabilise financial markets, and it looks like it has worked for now.
With falling stock prices, are there opportunities to buy Footsie shares at a discount?
I believe so, but much depends on my time horizon. As a long-term investor, I should be able to withstand short-term stock market wobbles.
Investing in the FTSE 100
Over the coming weeks and months, share prices could be driven more by factors such as interest rates, or investor sentiment. But if I plan to hold my shares for several years, I’d expect the investments to eventually become fruitful based on their fundamental attributes.
For instance, I’d look for shares that offer stable earnings growth, strong balance sheets, and sustainable competitive advantages. If my FTSE 100 picks can maintain these characteristics, I’d expect them to grow over time.
I’d also want to own big and established brands that have survived over many decades and through several market cycles.
That said, if I was investing £1,000 right now in the current market environment, I’d still want to limit my downside as much as possible. That’s why I’d focus on buying cheap but defensive businesses.
A portfolio staple
First I’d consider 100-year-old consumer goods giant Unilever (LSE:ULVR). This global business operates in over 190 countries, and its products are used by over 3.4bn people every day. It owns many established and popular brands that include Ben & Jerry’s, Domestos, and Dove.
Unilever benefits from a 15% profit margin and 15% return on capital employed. In addition, its 4% dividend yield should also provide me with regular passive income while I wait for the share price to rise.
Bear in mind that the cost-of-living crisis could lead to customers moving to cheaper competitor brands.
That said, Unilever has survived through recessions before. It’s also trading at a relatively low price-to-earnings ratio of 17x. That suggests an attractive entry point for this quality business and I’d happily buy these shares right now.
Defensive defence
Next, I’d buy aerospace and defence company BAE Systems (LSE:BA.). 2022 has seen a greater focus towards defence, and government spending in this area is set to rise.
I like that its long-term contracts provide stable cash-flow over many years. It also has a successful track record in delivering solid returns for shareholders, in my opinion. And I reckon that is likely to continue.
BAE is a world-class and technology-led business. Also, 63% of its sales are in the US and UK, where it has deep customer relationships. That said, having a concentrated customer base could become a headwind for BAE if these countries cut back of defence spending.
Overall, though, this FTSE 100 defensive defence contractor offers a double-digit profit margin, and a 3%+ dividend yield.
I’d happily split my £1,000 investment and buy both shares for my Stocks and Shares ISA.