As a result of coronavirus disruption, some sectors of the FTSE 100 have been hit hard in 2020. Airlines are a good example. This year, British Airways owner International Consolidated Airlines is down over 70%. Meanwhile, easyJet has fallen about 65%.
From a contrarian perspective, airline stocks definitely look interesting. There’s certainly a chance these stocks could rebound. However, if you invest in airlines now, you’re taking on a fair bit of risk. What if travel doesn’t return to normal for years? Will these companies be able to survive in their current form? With so much uncertainty due to Covid-19, a near-term rebound is not guaranteed.
In my view, investors are better off investing in sectors that are holding up well in the current environment and will continue to hold up well if economic conditions deteriorate further. With that in mind, here are my three preferred sectors of the FTSE 100 to invest in right now.
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A defensive sector
The first sector I like in the current environment is healthcare. And not just because it’s leading the fight against Covid-19.
What I like about healthcare is that it’s a defensive sector. People still buy medication and have operations when the economy is contracting.
I also like the long-term growth story associated with the sector. The world’s ageing population, rising emerging market wealth, and the increasing prevalence of major health issues are dominant structural forces that should provide tailwinds in the years ahead.
There are some excellent healthcare stocks in the FTSE 100. Smith & Nephew, GlaxoSmithKline, and Hikma are some of my favourites. I think these kinds of stocks offer a favourable risk/reward proposition at present.
Resilience in a downturn
Another sector of the FTSE 100 I like right now is consumer goods.
The reason I like consumer goods is that companies in this sector tend to be very resilient because they sell everyday products that people can’t do without.
It’s also worth pointing out that consumer goods companies that focus on cleaning products are benefiting from the increasing focus on hygiene. Reckitt Benckiser is a good example. Sales of its cleaning goods (Dettol, Lysol) are flying right now.
Consumer goods firms may not be the most exciting companies, however, they tend to be solid investments. Like healthcare stocks, they can provide you with portfolio protection.
My top FTSE 100 sector
Finally, my top FTSE 100 sector remains technology. I’ve been bullish on the tech sector for a while now, but the disruption we’ve all experienced from Covid-19 has amplified my bullishness. As the world has been forced to go into shutdown mode in the last few months, it’s tech companies that have really shone.
Some areas of technology that are booming right now include:
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Online shopping
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Remote working technology
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Video communications
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Cybersecurity
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Video gaming
Going forward, I expect the technology industry to continue powering ahead. Covid-19 is likely to leave a lasting impression on consumer behaviour, and technology is likely to benefit.
The FTSE 100 isn’t known for its technology prowess. It doesn’t have stocks like Apple, which is listed in the US.
However, there are plenty of companies in the FTSE 100 that have technology at their core. Sage, Rightmove, and Hargreaves Lansdown are good examples.
I think these kinds of companies are going to be the real winners in the years ahead as the world becomes more digital.
