Tuesday, 29 August ,was a great day for the FTSE 100. And I think it also gave us an indication of which could be the best shares to buy when the full-blown stock market recovery finally comes.
The index ended the day 1.72% higher, but three stocks on the index climbed more than 5%, recovering some of their recent falls. They could lead the charge when optimism returns.
Grocery tech specialist Ocado Group (LSE: OCDO) is a volatile growth stock that attracts more interest in a risk-on environment. Its shares crashed almost 90%, from 2,777p in January 2021 to 358p in early June, as investors hoping for big profits tomorrow panicked about the losses it’s incurring today.
Good times coming?
There’s still a brilliant opportunity here, provided it doesn’t run out of money. And investors embraced it yesterday with Ocado topping the list of FTSE 100 risers after jumping 5.45%. It’s up 112% over six months and 6.97% over the last year.
Ocado’s grocery warehouse robots are state-of-the-art but losses are widening and net debt is rising, which is a bad combination given today’s high interest rates. It’s too risky for me, but bullish investors who expect the market to rally further in the months ahead may be tempted to take a position today.
I expect more volatility
Yesterday’s second highest riser has also been on the rack lately, housebuilder Persimmon (LSE: PSN). Today’s housing market uncertainty has hit it harder than rival FTSE 100 housebuilders, with the board forced to slash its dividend by 75% way back on 1 March. Mind you, back then, it was yielding almost 20%.
Persimmon’s shares are down a thumping 60% over five years and 33% over 12 months. Yesterday, they jumped 5.27%.
It’s not out of the woods yet. Earlier this month, it posted a 66% drop in profit before tax to £151m. Property sales have now fallen to the lowest level in a decade, as rising interest rates bite.
Persimmon is unsurprisingly dirt cheap, trading at 4.2 times earnings. The forecast yield is 5.9%, covered 1.4 times. Let’s hope that holds. I feel it’s a little early to buy, but yesterday plenty of people felt differently.
Tuesday’s third biggest riser was paper and packaging specialist DS Smith (LSE: SMDS). It’s also had a hard time of late, with the shares down 42% over five years, although they are up 13.77% over 12 months now. That’s helped by yesterday’s jump of 5.12%.
I’ve previously picked out the paper and packaging sector as one that could spring back when the cost-of-living crisis eases and e-commerce picks up again, although I chose to buy Smurfit Kappa Group instead. It rose 4.45% yesterday.
I’ve found a paper tiger
Otherwise I’d be tempted by DS Smith, which is the least risky of yesterday’s top three FTSE 100 risers. In June, it posted a 75% increase in profits before tax to £661m, while also trimming its net debt.
It also reported “good” free cash flow which should help secure its dividend. The stock currently yields 5.8%. Despite its positive prospects, DS Smith still looks cheap, trading at just 7.71 times earnings.If I didn’t hold Smurfit, I would buy it this week.
Now bring on that rally!
