If one thing is clear this year, it’s that investing in stocks — even solid FTSE 100 shares — has become much tougher. As share prices have tumbled, global investors have become much more pessimistic. In particular, highly priced US tech stocks have fallen from favour, selling off sharply since November 2021.
Markets oscillate wildly
After US stocks fell for seven weeks in a row in the longest losing streak since 2001, the US S&P 500 index finally rebounded last week. After a rough roller-coaster ride, the main US stock index actually ended May largely flat, having jumped 8.8% in April. And the Nasdaq Composite index closed May down 2.1%, having plunged 13.3% in April. Meanwhile, the UK’s FTSE 100 index added 0.8% in May — a rare oasis of calm in otherwise turbulent global markets.
However, Jamie Dimon, chief executive of US mega-bank JPMorgan Chase warned yesterday that an economic hurricane was coming. He also predicted that the price of a barrel of oil could surge as high as $150-$175, versus under $114 earlier. Still, that might be good news for FTSE 100 heavyweights BP and Shell.
I still see value in the FTSE 100
Of course, history shows that share prices tend to rise over the long term. But for now, investors seem focused on the falling prices, higher volatility, lower liquidity and wider spreads (notably in bond trading) that prevail today. But when sentiment is so heavily negative, I recall the wise words of Warren Buffett. The Oracle of Omaha said in October 2008: “Be fearful when others are greedy, and be greedy when others are fearful.” That’s why I feel there are still opportunities today to buy into great FTSE 100 firms at reasonable prices.
Three solid shares to ride out a recession
One big worry right now is that red-hot inflation, rising interest rates and slowing economic growth could trigger a full-blown recession in 2022-23. These fears may be overdone, but if a downturn is coming, I’d prefer my money to ride out rough times invested in solid businesses. Hence, here are three FTSE 100 shares that I don’t own, but would buy now to survive the next storm:
| Company | Sector | Share price | 12-month change | Market value | P/E* | Earnings yield | Dividend yield | Dividend cover |
| Shell | Oil & gas | 2,361.5p | 68.5% | £175.5bn | 10.7 | 9.4% | 3.3% | 2.8 |
| Unilever | Consumer goods | 3,696p | -13.0% | £94.5bn | 18.7 | 5.3% | 3.9% | 1.4 |
| Diageo | Alcoholic drinks | 3,626p | 6.0% | £83.0bn | 27.9 | 3.6% | 2.0% | 1.8 |
For me, the biggest boats have the best chance of surviving the worst storms. Thus, the first thing to note about these three FTSE 100 firms is that they’re all colossal companies. The smallest is valued at £83bn, while the largest weighs in at over £175bn. Also, if the oil price does keep gushing upwards, then owning shares in Shell might be a useful hedge against this. And as a bonus, these shares offer dividend yields ranging from 2% to 3.9% a year.
Of course, oil companies may suffer if oil prices go into reverse and Unilever and Diageo may suffer if consumers cut their discretionary spending on premium brands.
To sum up, there’s a lot to worry about right now. But while investors often extrapolate today’s market conditions and trends way into the future, that may not happen, right? Hence, despite the storm clouds gathering, I prefer to look beyond to better times and improved returns!
