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Should I buy the FTSE 100’s 5 worst performing stocks of 2020?

Rupert Hargreaves
·3-min read
Young lady working from home office during coronavirus pandemic.
Young lady working from home office during coronavirus pandemic.

2020 has been an extremely challenging year for investors. One only has to look at the performance of FTSE 100 stocks to see why.

At the top of the scale, shares in some companies such as the Scottish Mortgage Investment Trust, Fresnillo and Ocado, have jumped more than 80%.

However, at the other end of the spectrum, shares in some of the index’s most prominent constituents, such as BP, Lloyds Bank and IAG, have crumbled by more than 40%.

As the world starts to get to grips with the coronavirus pandemic, I think buying a selection of these stocks could be a good idea.

FTSE 100 stocks to buy

The five worst-performing stocks in the FTSE 100 this year are IAG, Rolls-Royce, BP, Lloyds Bank and Royal Dutch Shell. At the time of writing, shares in these businesses have fallen between 40% and 61% year-to-date.

The performance of blue-chip companies this year can be split into two camps. There are those businesses that seem to have benefited from the pandemic and those that haven’t. Big oil corporations such as BP and Shell have struggled due to falling oil prices. Meanwhile, IAG, as the owner of British Airways, has seen revenue evaporate as the global aviation market has frozen.

Whether or not these FTSE 100 businesses can return to growth in 2021 depends on how the world reacts to the coronavirus pandemic. It seems as if there are green shoots on the horizon. At least three vaccines are effective against the virus, and one is already being rolled out. Over the next few months, tens of millions of people will likely be vaccinated. This should begin to bring the pandemic under control.

The most optimistic forecasts suggest the world could be back to normal by the middle of next year. I think that seems unlikely, but I do believe the worst should be behind us by the end of 2021.

However, some of the worst-performing FTSE 100 stocks of 2020 already registering improving operating performances. BP and Shell, for example, are benefiting from a rising oil price. In the past few weeks, the price of Brent crude oil has risen above $50 a barrel, taking it back above the level it was trading at before the WHO officially declared a global pandemic.

At the same time, Lloyds and its banking sector peers have issued some impressive trading updates in recent months. These updates have suggested that the worst is behind the UK financial sector.

The bottom line

As such, I think it may be worth acquiring a basket of these poorly performing FTSE 100 stocks. That being said, when it comes to Rolls-Royce and IAG, I’m a little bit more hesitant. It could be many years before the global aviation industry returns to 2019 levels of activity.

Therefore, these companies may struggle until the middle of the decade. In my opinion, it may be better to avoid these businesses while they continue to face short-term headwinds.

The post Should I buy the FTSE 100’s 5 worst performing stocks of 2020? appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Fresnillo and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020