Last week, many bargain FTSE 100 shares dropped back. And that weakness in the markets may have been a bit of a shock to people after the robust rally we’d been seeing off the coronavirus lows of the spring.
And we can find several bearish voices warning of a second crash in the stock market. But analysts at JP Morgan are more optimistic. They see “plenty of upside for equities in the medium to long term.” And compounding such gains could help you become an ISA millionaire over time.
Why I’d buy bargain FTSE 100 shares
I think JP Morgan may be right. We could argue that the fast bounce-back rally had been getting ahead of itself, particularly in US markets. But the fundamentals driving the rally remain in place. Indeed, we’ve been seeing fast economic recovery emerging because of the easing of lockdowns. The pandemic is largely being controlled (so far), and governments are throwing massive fiscal stimulus at the economic problem.
In England, today’s the day non-essential shops can throw open their doors for their customers once again. Some people have been fretting that fear about the pandemic could keep customers away from shops. But I reckon there’s pent-up demand and sales will likely be brisk everywhere. Of course, social distancing measures will have some effect on how much of the demand stores can satisfy.
But queues for drive-through takeaways have been huge since they reopened. And I’d have thought those fearful of catching a virus might have avoided fast food. But there isn’t much evidence people are avoiding takeaway food. So why would those people avoid using other shops? There are some parallels in the way supermarkets have been trading so well through the crisis. To me, it’s a natural extension to expect similar levels of business in non-essential shops.
We could be seeing opportunity
Meanwhile, we’ve seen a few scary numbers about how far GDP has plunged over the past couple of months in the UK. Indeed, the economy essentially stopped in the lockdown. Those numbers were always going to be big, but the recovery will likely be rapid as economic activity resumes. Meanwhile, the recent back-step in the stock market has blown off some of the speculative froth.
We could be seeing a good opportunity to pick up shares in the cyclical sectors that stand to benefit from recovering revenues. For example, FTSE 100 retailers such as Next, Burberry and JD Sports Fashion.
However, in a balanced long-term portfolio, I’d also consider defensive FTSE 100 names. For example, tobacco and smoking products company British American Tobacco has an attractive-looking valuation. I’d also consider premium alcoholic drinks provider Diageo and pharmaceutical firm GlaxoSmithKline. And in the energy space, National Grid and SSE.
Others could make decent long-term investments from here too, such as fast-moving consumer goods giant Unilever and cloud-based business software and service provider Sage.
Overall, I’m much more likely to be a buyer of shares in the recent market pull-back than I am a seller.
