The FTSE 100 has fallen by 19%, year-to-date. The market turbulence might have opened up a great buying opportunity for investors looking to snap up shares at bargain prices.
However, it is wise to exercise caution.
“Never lose money”, is Warren Buffett’s first rule of investing. There is certainly an abundance of risk in the market today.
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With this in mind, I have identified two FTSE 100 shares that I believe might offer a good balance of risk and reward for the long-term investor.
The global drinks giant
Diageo’s (LSE: DGE) share price has fallen by 10%, year-to-date.
Many of the pubs, restaurants, and bars that sell the company’s drinks remain closed because of the lockdown. This is likely to hit Diageo’s revenue for some time.
However, when things turn back to normal, I fully expect that people will still be consuming Diageo’s drinks. One of Diageo’s many strengths is the brands included in its portfolio, such as Guinness, Baileys, and Smirnoff.
Already, the business has noted that on mainland China, where bars and restaurants are gradually reopening, it has seen a slight return of on-trade consumption.
Diageo has decided to proceed with its interim dividend as previously announced. However, its share buyback programme has been put on ice.
The company has a strong balance sheet and is working with key suppliers and customers to ensure it is in a good position when customer demand increases.
The stock is trading at a price-to-earnings ratio of roughly 25, which might seem a tad pricey to some. But in my view, its global presence and position in the market makes it a great FTSE 100 stock to buy and hold for the long term.
Time to buy this FTSE 100 share?
Like Diageo, Reckitt Benckiser (LSE: RB) has a strong portfolio of brands. These products include household names like Dettol, Gaviscon, Durex, and Nurofen.
The low-cost nature of these items means that sales might be resilient even in times of economic difficulties. Like Royston Wild, I believe this indicates that Reckitt Benckiser could be a great FTSE 100 defensive stock to buy right now.
Due to strong sales of its health and hygiene products, the company’s first-quarter revenue was up by over 13.3% to £3.5bn. I believe this is a trend that could be continued until a satisfactory vaccination is found for the coronavirus, with cleaning products likely to be in high-demand for some time.
Will this impressive sales momentum continue in the long term? It is hard to say. The company has announced that it expects its outlook to be better for the year than previously announced. In the medium term, Reckitt Benckiser is aiming for sustained mid-single-digit organic revenue growth by 2025.
In the market sell-off, Reckitt Benckiser’s share price dropped by almost 17%. Since then, the market has shown signs of a recovery, and its stock price has rebounded by roughly 34%. Consequently, the shares might look expensive, with a price-to-earnings ratio of 20.
Despite not trading at a bargain price, buying shares in consumable companies with sustainable revenue has been a winning strategy for investors like Warren Buffett.
I think FTSE 100 shares like Diageo and Reckitt Benckiser are the type to buy and hold for the long term. As the saying goes, “time in the market is better than timing the market”.
