Last week, as the FTSE 100 closed above 6,000 for the first time in over a month, I sat wondering if the stock market crash was indeed past its worst. Apparently not. The FTSE 100 index fell in three of the last four sessions at the time of writing.
The Warren Buffett strategy
And that’s not all. Incoming numbers on the economy are dismal. According to an Office of National Statistics (ONS) survey, all businesses that are still running say their turnover has fallen. The majority of them expect the situation to worsen or stay the same as the lockdown continues to create economic uncertainty. Even Warren Buffett is sounding worried, according to a New York Times report. In fact, he reportedly sat it out during the stock market crash and invested exclusively in US Treasury bills.
FTSE 100 and economic growth
So what’s an investor to do when the economy just isn’t supporting stock markets? It’s true that the worst is yet to come for the economy. But on the bright side, stock markets themselves can well be a ‘leading indicator’ for economic trends. In other words, they can foretell what’s next for the economy.
So, for instance, the stock market crash took place before a recession showed up in macroeconomic numbers. In fact, it still hasn’t. Economy data’s released with a lag. The latest three-month rolling GDP estimate shows 0.1% growth, which is an improvement over the past two prints, but the number is until February. We all know what’s happened since.
Investing in growth shares in the stock market crash
This means that investors can have some confidence about what’s ahead, even if the immediate future looks scary. High-quality FTSE 100 stocks are a safe bet right now, I believe. After the small FTSE 100 correction in the past few days, some stocks have become more attractive than they were earlier.
One of these is the FTSE 100 consumer goods giant Unilever (LSE: ULVR), which touched its lowest share price since the start of April yesterday. This brought it 10% below the level it was at two months ago. But it’s not just the broader trend that’s bringing ULVR down. It’s results released two weeks ago are disappointing. Its sales have shown zero growth, and in light of the coronavirus crisis, it has withdrawn its growth guidance for 2020.
However, I still think it’s a great buy. For one, its sale of domestic hygiene and in-home food products is seeing an upswing, even while other segments are lagging. This is far more than many other businesses can say. Two, it also mentions its strong balance sheet and cash position, both of which are positives for long-term investors. Three, its long-term share price history inspires confidence in ULVR’s ability to allow for capital apprecation overtime.
ULVR’s pricier in absolute terms than many other FTSE 100 companies, but it holds potential to give great returns. I think it’s worth buying.
