It has been a turbulent couple of years on global stock markets. This year has started with yet more market volatility that could continue for a considerable period. But one thing I have learned from past market crashes is that once they bottom out, recoveries can come at very different speeds. Sometimes it takes decades. But on other occasions, a market recovery arrives quickly and shares are no longer available at the bargain basement prices for which they had been changing hands.
With that in mind, I have identified three shares I see as attractive options to buy and hold in my portfolio for the long term. I would consider adding them now, rather than waiting in the hope of further price falls. Although no-one knows when it will arrive, I feel confident that in due course we shall see a market recovery.
boohoo
The decline in the boohoo (LSE: BOO) share price over the past year has been more dramatic than in the online retailer’s sales. The share price has fallen 75% in a year and I think it could still fall further. Clearly a lot of investors are feeling negative about the shares. Cost inflation in boohoo’s supply chain could hurt profits. As it is focussed on low-priced clothing, it lacks the ability to pass on such cost increases to customers in the form of price increases without risking sales falling. On top of that, boohoo is still recovering from reputational damage about conditions in some of its suppliers’ factories. If that turns shoppers off the brand, it could hurt both sales and profits.
But if the boohoo share price does fall further, I would see it as a buying opportunity for my portfolio. I have started buying boohoo shares this year and would happily add more at the current price. In the short term, the shares may continue to move around a fair bit. But in the long term, I see a compelling investment case. Online shopping is growing, which helps boohoo. It has been expanding internationally, most notably in the massive US market. It has developed an appealing brand and its business model has been consistently profitable over the past few years. So I think the current difficulties faced by boohoo are obscuring the potential of the share to be a star performer in my portfolio if I hold it in the coming years. Once the market sentiment becomes more positive again, I hope that will lead to the boohoo share price recovering at least some of its recent share price losses.
JD Wetherspoon and market recovery
Another UK share I would consider buying now for my portfolio is beaten down pub operator JD Wetherspoon (LSE: JDW). Over the past year, its shares have fallen 32%. It has now lost 49% from its price in December 2019, before pandemic public health measures dealt a savage blow to the pub trade.
Spoons has definitely had challenges and many of them could persist. Wage and cost inflation threaten to eat into profits. Some customers may have abandoned pub drinking forever due to concerns about mixing with strangers. But I think pubs will continue to see brisk trade and Wetherspoons has a proven operational model. Its large estate and cheap prices could help it recover. I would be happy to buy Wetherspoons now for my portfolio and hold it in the hope of future business recovery.
British American Tobacco
A lot of investors choose not to own tobacco shares for ethical reasons. For those who are willing to own them, however, such stocks can be rewarding.
The most obvious way in which I am rewarded for holding shares in Lucky Strike owner British American Tobacco (LSE: BATS) is its dividend. The company recently raised its annual payout again, as it has done every year for over 20 years. Currently, the British American Tobacco dividend yield is 6.7%. That is substantially higher than most of the company’s peers in the FTSE 100 index of leading companies.
British American also announced in its annual results this month that it plans to restart its share buyback programme and promptly did so. That could also be rewarding for shareholders. As Warren Buffett explained in his shareholders’ letter released at the weekend, “When the price/value equation is right, this path (a share buyback) is the easiest and most certain way for us to increase your (shareholders’) wealth”. Buffett was talking about the company he chairs, Berkshire Hathaway, but his logic applies to British American Tobacco too. By reducing the number of shares in circulation, the company can increase the earnings per share even if total earnings are flat. That can help support a higher yield and share price.
I also see share price growth potential in the tobacco giant. Tobacco shares have been out of fashion for years. While the British American Tobacco share price has increased 28% over the past year, it remains over 40% below the levels it reached in 2017.
Of course there are risks with tobacco shares. As cigarette use declines in most developed markets, revenues could fall. Pricing power can allow British American to maintain profit margins as revenues decline, but that cannot help sustain profits if sales decline dramatically. However, the company’s line of non-cigarette alternatives is seeing rapid revenue growth. Sales hit £2bn last year and profits are expected to appearing in 2025. Despite the risks, I see British American Tobacco as a company to buy now and hold for my portfolio for the long term.
