The stock market crash continues. The UK’s FTSE 100 has taken another thumping on Monday. However, where there’s fear, opportunities abound for share buyers with long-term investing horizons.
I see terrific value on offer, if you can look beyond the near-term turmoil that will inevitably crush many companies’ earnings this year. Running my eye over top FTSE 100 stocks today, I’d happily buy oil behemoth Royal Dutch Shell (LSE: RDSB), drinks giant Diageo (LSE: DGE) and healthcare group Smith & Nephew (LSE: SN).
Big discounts
I’ll start by emphasising the sheer size of the discounts these three companies’ shares are now available at, as a result of this stock market crash.
|
|
Recent share price (p) |
Fall since 21 February (%) |
Fall from 52-week high (%) |
|
RDSB |
1,050 |
-44.3 |
-60.0 |
|
DGE |
2,330 |
-24.8 |
-35.7 |
|
SN |
1,180 |
-38.7 |
-40.7 |
These really are substantial falls. Even the highly ‘defensive’ Diageo has lost almost a quarter of its value in little more than three weeks. This tells me there’s a lot of fear in the market, and that smart, long-term investors should be getting greedy.
Déjà vu
In the last 10 days, Shell’s share price has fallen to levels not seen since the last oil price crash in the middle of the last decade and then fallen further (for a couple of months, in the winter of 2015/16, the shares were available at sub-1,500p).
Investors who bought at that time locked in annual dividend yields of over 10%. Buyers of £10,000 of Shell stock have since received total dividends of up to £5,000 — and counting.
At today’s price of 1,050p, the $1.88 annual dividend (152p at current exchange rates) gives a yield of 14.5%. I’ve got no special insight into the future, but what I do know is that oil price crashes and stock market crashes have never yet lasted forever.
World-class brands
Diageo’s told us its sales and profits for its financial year to 30 June will suffer from the impact of Covid-19. However, with China seemingly already over the peak of the outbreak, I find it hard to see the company being affected much beyond calendar 2020.
More importantly, in the longer term, I’m confident Diageo’s world-class portfolio of drinks brands — the likes of Johnnie Walker whisky, Gordon’s gin and Guinness stout — will be enjoyed by increasing numbers of people around the world.
I’m also confident the company will exceed last year’s earnings of 130.8p per share and 68.57p dividend, in due course. As such, I believe the shares, currently priced at 17.8 times those earnings, with a 2.9% yield on the dividend, offer excellent long-term value.
Increasing demand
Finally, global medical technology group Smith & Nephew reported strong annual results just before the current stock market crash. It also said it expects revenue growth, and maintained or improved profit margins, in 2020. However, it cautioned that this outlook assumes the “situation regarding [the] Covid-19 outbreak normalises early in Q2.”
This looks optimistic. With healthcare services around the world under pressure, I’d imagine there’ll be some delays to non-urgent operations. And as such, temporarily reduced demand for a number of Smith & Nephews products, like knee and hip implants.
Again though, looking beyond this year, I believe there’ll be increasing demand for such products in the coming decades. I reckon this is another FTSE 100 stock currently offering great value, with its shares trading at 14.2 times last year’s earnings of $102.2 cents (83p), and a 2.9% yield on the dividend of 37.5 cents (30.5p).
