One thing you’ll notice in the coming weeks and months as the market panics over the uncertain threat of coronavirus is that a FTSE 100 correction throws up a lot of opportunities.
That means good things for small private investors who have been sitting on piles of cash and waiting for the right opportunity to strike.
As the Wall Street Journal pointed out this week, large institutional investors are being forced to sell out of their major shareholdings. The same is not true for the likes of you and me. Financial reporter Jason Zweig notes: “Small investors who resist the coronavirus fears sweeping the market could be in position to buy bargains as big money flees.”
Lloyds
At a current share price of less than 50p, FTSE 100 stalwart Lloyds (LSE:LLOY) offers a dividend yield approaching 7% on a price-to-earnings ratio of under 15. It remains one of the most hotly traded shares on the entire UK market, with hundreds of millions of shares changing hands every day. Recent results spelled out a few issues but I’m confident in the bank’s turnaround plan.
Despite the market fear of a dividend cut, the bank actually raised its full-year 2019 dividend by 5% to 3.37p per share. And while profitability — measured by return on tangible equity — will be 1% lower than forecast, Lloyds has made a tough, but right, decision in cutting 780 jobs to stave off losses. I see the share price returning back at least to the mid-50p mark.
Legal & General
I would rate Legal & General (LSE:LGEN) as a strong buy. The £15bn market-cap UK insurance giant, pension fund operator, and low-cost tracker fund manager is always top of my list whenever the wider market falls. When the share price recovers from these levels, the elevated dividend yield above 6.2% will probably settle back into its normal 5.5% range but you will have a pleasing amount of capital appreciation to fall back on.
While the LGEN share price has dropped 14% in the last seven days, it has actually lost less of its value than most of its FTSE 100 peers. And given that before coronavirus panic hit the markets, the shares were 41% higher than they were six months before, I see this dip as a buying opportunity.
SSE
Renewables giant and wind farm operator SSE (LSE:SSE) is in prime position to take advantage of the UK’s legally binding move to net zero carbon emissions by 2050. None of this will change because of a virus.
For me it’s a strong buy today, tomorrow, and for the next 30 years. A dividend yield of 6.2% is testament to the management strategy of improving yearly payouts to shareholders: it soared from 88p per share in 2015 to 97p per share in 2019.
And the SSE share price is one of the lowest fallers across the FTSE 100, with just 6% taken from its all-time high. That says to me that there is relatively more market confidence in this highly profitable company than in its rivals.
The most important thing for long-term investors to remember is that volatility is high whenever there is a significant amount of fear and uncertainty present. Markets may suffer steep drops but those of us who can remain calm and keep our long-term focus will likely make the best of the bargains now out there.
