The FTSE 100 has fallen back 6% since its crash-recovery high on 5 June. This leaves it 18% below its pre-crash level of 21 February. I see an abundance of opportunities among FTSE 100 shares for buyers looking beyond the inevitable earnings-crushing turmoil of 2020.
Running my eye over blue-chip names today, I’d happily buy consumer goods giants Diageo and Unilever. I also reckon Primark-owner Associated British Foods, utility National Grid, and healthcare group Smith & Nephew are eminently buyable.
Performance of these FTSE 100 shares
I’ll start by putting the performance of my five share picks against that of the FTSE 100. This is summarised in the table below.
|
|
Fall since 21 February (%) |
Fall since 5 June (%) |
|
FTSE 100 |
-18 |
-6 |
|
ABF |
-24 |
-5 |
|
DGE |
-12 |
-6 |
|
NG |
-19 |
-6 |
|
SN |
-21 |
-13 |
|
ULVR |
-24 |
-5 |
As you can see, the shares of all bar Diageo have fallen further than the FTSE 100 since 21 February. And all bar Smith & Nephew have broadly matched the index’s drop since its crash-recovery high on 5 June.
A closer look at these FTSE 100 shares
Let’s look first at Diageo. I’m not surprised the shares of this owner of world-class brands — such as Johnnie Walker whisky, Gordon’s gin and Guinness stout — have performed well relative to the FTSE 100. After all, it’s a classic ‘defensive’ business.
Nevertheless, it hasn’t entirely escaped the impact of the Covid-19 pandemic. However, I expect earnings to recover to 2019 levels in due course. And then to resume growth, as rising numbers of people around the world enjoy the group’s wide range of much-loved brands.
Defensive underperformers
Given utilities, healthcare, household goods and food are also classic defensive industries, it’s somewhat surprising National Grid, Smith & Nephew, Unilever and Associated British Foods have underperformed the market since 21 February. However, I reckon this makes these FTSE 100 shares all the more attractive.
National Grid received a jolt this week from gas and electricity regulator Ofgem. Proposed radical reforms would set NG’s allowed return 50% lower than under the existing regime. However, even if this goes ahead (it’s a draft determination), I’d still see National Grid’s shares as attractive due to the FTSE 100 business’s monopoly characteristics.
There have been suspensions of non-essential surgery in many countries due to the Covid-19 pandemic. This has hurt demand for some of Smith & Nephew’s medical devices, such as hip replacement systems. However, I expect a full recovery as countries end their freezes on elective surgery. I’m keen on SN’s shares due to long-term demographic trends favouring this FTSE 100 healthcare star.
ABF’s food businesses have been performing well. But of course, Primark has suffered from the temporary closure of its shops during lockdown. I expect sales to recover to pre-pandemic levels in due course. And I see a long international growth runway for the chain.
Unilever’s stable of trusted food and household brands make it an inherently attractive business, in my view. Warren Buffett backed an approach for this FTSE 100 giant a few years ago, and the shares are currently trading not much above the level they were then. As such, I’m confident ULVR is an attractive investment proposition today.
There you have it. I’d look beyond the earnings-crushing turmoil of 2020, and happily buy these five high-quality FTSE 100 shares for the long term.
