3 FTSE 100 shares I reckon look set to outperform their index

My expectation is that these three FTSE 100 stocks will climb out of their holes and exceed previous highs.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The current bear market for shares is shaping up as a big event. But even though FTSE 100 shares have fallen a long way already, two things raise the possibility that some stocks could yet have further to sink, perhaps much further.

Cyclicals tend to plunge the most

The first is that the bear market that started in the middle of 2007 following the credit crunch ran for much longer than today’s has, so far. And the second is that some shares with cyclical underlying businesses back then fell as much as 90%. And despite the falls we’ve seen already this time, not many big-name shares have yet plunged that far.

For example, plumbing and heating products distributor Ferguson (LSE: FERG) saw its share price starting to fall around 1 June 2007. But the bottom of that move didn’t arrive until 20 months later in February 2009. By then, the stock was changing hands at prices around 85% lower.

And Barclays (LSE: BARC), the well-known banking group, took 21 months to complete its bear move. From 1 June 2007 to 1 March 2009, the stock fell by around 86%. Meanwhile, Persimmon (LSE: PSN) the housebuilding company, dropped by around 82% between 1 June 2007 and 1 December 2008, a period of 18 months.

The stock market can be intelligent

The stock market can be quite an intelligent beast. It is after all the sum of all participants in the market — that’s a lot of minds aiming to predict the future. And I reckon the recent market-move is signalling general economic weakness ahead. Meanwhile, these three cyclical companies have so far escaped with quite modest down-moves compared to those at the time of the credit crunch and the recession that followed.

Since the down-moves began around 21 February, at 5,504p as I write, Ferguson has plunged around 27%. And at 2,151p, Persimmon is 34% lower. Barclays has fared the worst. At 98p, the stock has fallen around 46%.

Meanwhile, City analysts have yet to seriously dig into marking-down forward-looking forecasts regarding earnings for these firms. When, and if, they do that, I reckon we could see further falls. And I believe the coronavirus pandemic has the potential to tip the world into a prolonged recession.

Great potential ‘buys’ for later

Despite plunging share prices now, I reckon Ferguson, Persimmon and Barclays could be decent vehicles for riding the next up-leg in the markets. Cyclical shares like these move down quickly when the outlook is grim, but they can also climb out of their holes over many years, often exceeding previous highs.

So, right now, I’d ignore cyclical shares and focus on less-cyclical, high-quality defensive stocks in my search for share bargains. But later, when the markets begin to turn back up, I’ll be watching the likes of Ferguson, Persimmon and Barclays closely with a view to buying some of their shares because I think they’ll likely go on to outperform their index.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »