The stock market crash has left some FTSE 100 shares trading down by as much as 50%. Some of them look very cheap. But this could be a sign that the market doesn’t expect them to recover very quickly.
I think there’s more money to be made by following Warren Buffett’s example. Buffett prefers to buy “wonderful companies at a fair price”. Today I want to look at three stocks I think will bounce back quickly after the pandemic.
Knowledge is power
My first pick is information and events group RELX (LSE: REL). This firm makes around 85% of its profits from products such as scientific journals, legal data services, and “risk and business analytics”. Â
All of these products and services involve RELX providing valuable and often unique data to its clients. Controlling so much valuable data is profitable – RELX generated an operating margin of 27% last year.
So far, this subscription business has only seen “a limited impact” from COVID-19. Although I think we could see a further hit later this year, I don’t expect profits to collapse.
The RELX share price has fallen by less than 10% so far this year. That puts this FTSE 100 share on a price-to-earnings ratio of about 20, with a 2.6% dividend yield. These numbers may not seem cheap, but I think it could be a fair price to pay for a high-quality company. I’d be happy to start buying at this level.
This FTSE 100 share could motor ahead
The used car business has been shut down by the coronavirus pandemic. To show support for its advertisers, car listing website Auto Trader Group (LSE: AUTO) is suspending its monthly fees for the duration of the lockdown.
I think this is a fair move that should serve the company well, as it should stop advertisers leaving during this difficult period.
In fairness, Auto Trader can afford to be generous. The group generated an operating margin of 71% last year, making it one of the top three most profitable companies in the FTSE 100.
As you’d expect, this FTSE 100 share rarely looks cheap. But the Auto Trader share price is down by about 25% this year, giving us the chance to buy the shares for just 20 times forecast earnings. For a business with high profit margins and an estimated market share of more than 75%, I think that’s a fair price.
This family firm should recover strongly
My final pick is FTSE 100 stock Associated British Foods (LSE: ABF). This group owns food brands such as Kingsmill, Ovaltine and Twinings, as well as fashion retailer Primark.
Despite its £15bn market cap, ABF is still a family firm at its heart. The founding Weston family control 54% of the stock and family member George Weston is chief executive. This long-term commitment means that unlike some rivals, ABF went into this crisis with net cash of £801m and virtually no debt.
The closure of all Primark stores has hit the firm hard and is currently costing £650m in lost sales each month. But the group’s food business has been performing very well during this crisis, as locked-down households have bought more food than usual.
I’m confident that ABF will make a strong recovery over time. This FTSE 100 share now trades on on just 15 times forecast earnings. I think this could be a good time to buy.