On this date last year, the FTSE 100 index fell to a level of 4,993. This was the first time it had fallen to sub-5,000 levels since October 2011. It was also the lowest point since last year’s stock market crash that, according to one definition, happened on 12 March 2020, when the index lost more than 10% of its value in a single session.
Thankfully, we have come a long way since. At yesterday’s close, the FTSE 100 index was up almost 35% from the day.
Investing lesson from the stock market crash
I think there is a big investing lesson here.
And that is to invest in quality stocks when they are at their lowest, even if that appears counterintuitive at that moment. When stock markets are sinking, it is easy to imagine the worst. But as the past tell us, quality companies endure and crashes are overcome.
There can be big rewards for investing courageously at such points. As an example, consider the FTSE 100 luxury brand and retailer Burberry. I had mentioned it in the context of the stock market crash last year as a growth stock I would buy.
At the last close, the Burberry share price was up almost 86% from those levels. Even if that looked like too risky a time to buy stocks, and I had waited a good three months to buy it, my capital would have still appreciated by 28% by now.
Another stock I had mentioned was the alternative asset manager Intermediate Capital Group, which had just broken into the FTSE 100 index at the time. Its share price is up a whole 180% from 23 March 2020 to now.
Would I buy these FTSE 100 stocks today?
Much as I like both stocks, and believe there is still some investing upside to them, they have turned pricey. Going purely by the earnings ratio, Burberry has a huge one at 392 times. Compared to this, its French peer, Kering, which owns brands like Gucci and Alexander McQueen, has a modest ratio of 34 times. Even LVMH, the biggest global luxury company, trades at a ratio of around 60 times.
Similarly, ICP has a much higher ratio of 35 times, too, compared to M&G which is at 4.6 times and Standard Life Aberdeen at 7.8 times.
Stocks to buy now
At this time, I think shares like Segro, the warehouse-focused real estate investment trust is one to consider. With online spending firmly on the rise, this share has seen a good 2020 and could well see sustained good times.
Another one is the FTSE 100 multi-commodity miner Rio Tinto, which at 12.5 times has a much smaller earnings ratio than peers like Anglo American (23 times) and BHP (21 times). Strong financials and a continued commodities boom could hold it in good stead I believe.
There is some risk to both Segro and Rio Tinto if these long-term growth ideas do not quite play out. I think that is unlikely though, going by incoming reports on changing consumer preferences towards online spending and large scale government stimulus spends that impact commodities positively. For me, they are good buys.