The second Covid-19 wave is hurting the FTSE 100. Since a post-crash high in June, London’s top index has fallen 11%. And it’s now down 23% year-to-date. I think we could be in for worse before things get better.
So rather than seeking recovery opportunities, maybe I should be looking for companies with defensive, long-term, resilience? I reckon that’s a good strategy anyway, and I’m examining two candidates today.
Investment management
First up is St James’s Place (LSE: STJ). The FTSE 100 investment management firm has seen funds under management surge to a record high. In the three months to 30 September, net inflows reached £1.44bn. That’s below the £2.11bn for the same quarter last year, but the overall total is rising. At the close of the quarter, the company had £118.7bn in funds under management.
For a lot of people, using an investment manager makes good sense, and these hard times appear to be focusing minds on financial safety. Andrew Croft, chief executive, said: “We see an increasing demand for sound, highly personal financial planning advice and we remain extremely well positioned to meet this opportunity and drive further growth over time.“
St James’s Place is enjoying resilient demand, yet its share price is falling. We’re looking at a 21% drop so far in 2020, very close to the FTSE 100 itself. So what gives? Well, investment management firms tend to command relatively high valuations. And I can’t help wondering if people are retrenching and moving to stocks on cheaper-looking fundamentals like P/E ratios.
Even after the fall, the St James’s Place share price still indicates forecast P/E multiples of about 20. But there are dividend yields of around 4.5% on the cards too. St James’s Place has what I see as long-term defensive qualities, and I’d ignore the short-term troubles of 2020 and buy.
FTSE 100 merger
With similar thoughts, I’ve had Standard Life Aberdeen (LSE: SLA) in my mind for some time. I’ve been following the company ever since it was formed from the merger of the old Standard Life with Aberdeen Asset Management. I’d liked Aberdeen for some time, and over the decades, I’ve had a soft spot for the FTSE 100 insurance sector.
The merging of the two businesses did not go as smoothly as hoped, and the shares have suffered a bad spell. Over the past five years, the Standard Life Aberdeen share price is down more than 50%. That does include a 30% Covid-19 slump in 2020, significantly below the FTSE 100. But even then, the price today is only a few pennies below February 2019’s low point.
But as my Motley Fool colleague Peter Stephens has observed, the company does finally seem to be getting its strategy together. I thought first-half results released in August were positive. Outgoing chief executive Keith Skeoch spoke of the company’s “strong balance sheet” and lauded its ability to maintain its interim dividend. I see that as a key strength right now.
Forecasts suggest a 2021 P/E of around 15, with a dividend yield of about 6.5%. The dividend would only just be covered, but I think that itself would be good progress. I’m seeing an attractive valuation here, and I’d buy.
