As I write, it’s been exactly three months since the government placed the nation in lockdown to control the coronavirus pandemic. Monday, 23 March was also when the FTSE 100 index hit its 2019–20 low.
Individuals, businesses and other organisations endured huge hardships in order to “Stay Home, Protect the NHS and Save Lives” (as the government slogan urged us). Three months of economic austerity has shattered corporate profitability and sent unemployment soaring.
The FTSE 100 is down a sixth in 2020
Obviously, a global pandemic that has taken almost half a million lives will damage company earnings and valuations. Hence, the FTSE 100 index is down a sixth (16.9%) in 2020, but this comes after a steep rebound since 23 March. At its lowest ebb, the FTSE 100 was down twice as much, collapsing by a third (34.3%) in less than three months.
A rising tide doesn’t lift all boats
The FTSE 100 has staged a strong comeback, rising more than a quarter (26.5%) since late March. Even so, this still leaves the index down almost 1,300 points in 2020. Ouch.
Of course, when markets fall and rise, not all shares swing to the same degree. Financially resilient firms have had their shares move in modest ranges, while endangered businesses have seen their stocks oscillate wildly (as The Smiths sang).
These are the FTSE 100’s ‘lockdown dogs’
As markets crash and rally, they produce widely dispersed winners and losers. To illustrate this point, these seven FTSE 100 shares have actually fallen since 23 March to today:
HSBC Holdings -26.0%
BT Group -9.4%
Rolls Royce Holdings -8.8%
Lloyds Banking Group -5.9%
Standard Chartered -5.0%
Land Securities Group -1.3%
Royal Dutch Shell -0.8%
As you can see, of these seven FTSE 100 shares that have fallen in value, three are banks. That’s hardly surprising, as loan losses and defaults will soar this year. Likewise, real-estate firm Land Securities is heavily exposed to falling values of UK commercial property.
Of the remaining three, BT Group is in an endless struggle, with its share price collapsing by nearly three-quarters (74%) over the past five years. Rolls Royce’s fortunes are mostly tied to the ailing airline industry, while Shell’s shares collapsed with the oil price.
Which FTSE 100 faller would I buy?
Having come from a working-class background in the North East, I love a bargain. I also love the wisdom of billionaire investor Warren Buffett, who argues, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
Following the Oracle of Omaha’s advice, I could easily see myself buying shares in oil supermajor Shell and even beaten-down UK retail bank Lloyds. But for me, the stand-out bargain among these FTSE 100 stocks is the worst performer: Asia-focused global mega-bank HSBC (LSE: HSBA).
I already argued that HSBC shares were a buy at 423p earlier this month, just before the market had its latest spasm. Priced to sell at 387p, they are now 8.5% cheaper, making them even more of a bargain-bucket buy. Indeed, they are just 17p above the low of 370p hit on 29 May.
In summary, FTSE 100 colossus HSBC’s shares are trading at levels rarely seen this millennium and in line with those seen during the global financial crisis. Eventually, HSBC should bounce back and again start paying out billions in cash dividends. For this long-term income stream and as a value bet, I’d happily buy HSBC shares today.
