The world’s greatest investor Warren Buffett knows exactly what to do in a stock market crash like this one. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
The FTSE 100 is full of quality companies that have been marked down as share prices crash, and my favourite is pharmaceutical giant GlaxoSmithKline (LSE: GSK). I would much rather buy the falling Glaxo share price inside a Stocks and Shares ISA, than gold or crypto-currency Bitcoin.
The gold price has disappointed. It usually rises when share prices fall, because investors see it as a safe haven. Not this time. Instead of buying gold, many far-sighted investors have been selling it to invest in today’s crashing share prices. That would be my strategy.
Forget gold, forget Bitcoin
Bitcoin has also disappointed investors who thought it was a safe bolthole. Before Covid-19, Bitcoin traded at more than $10,000, but has slumped to around $6,000. That’s a crash of 40%, greater than the 25% drop on the FTSE 100.
Personally, I would ignore gold and Bitcoin in favour of buying top FTSE 100 stocks like Glaxo, tax free in a Stocks and Shares ISA. The Glaxo share price has fallen 20% from its mid-January high, to 1,475p, at time of writing. That’s a relatively small drop, by the standards of today’s stock market crash.
I’d buy Glaxo in an ISA
Glaxo is what is known as a defensive stock. As a FTSE 100 healthcare giant, it should have relatively steady income. People still fall ill in a recession and need pharmaceutical medicines, vaccines, and consumer healthcare products, which is what Glaxo produces.
Pharmaceutical stocks look even more tempting now, given that today’s stock market crash has been triggered by a health crisis. As a leading vaccine maker, Glaxo is collaborating with a range of companies and institutions to help find, make, and produce a vaccine.
There’ll be no political mileage in cutting health budgets after everything Western countries have been through. Glaxo is a stock for this crisis and beyond.
A top buy for this stock market crash
Glaxo has been focusing on boosting its pipeline of drugs and treatments, which will drive future revenues. To fund this, management has frozen the dividend at 80p since 2016. However, Glaxo still yields an attractive 5.5% a year, covered 1.4 times by earnings. That’s tax free inside a Stocks and Shares ISA.
Even if Glaxo cut or scrapped its dividend in response to the crisis, the payout will be back.
The other big attraction of the Glaxo share price is that the FTSE 100 stock market crash has left it trading at just 12 times earnings, the cheapest valuation I can recall. Typically, investors pay between 16 and 18 times, and often more.
Glaxo is what Buffett would call quality merchandise, marked down. Right now, it looks a top buy for investors willing to hold for the long term.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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