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The FTSE 100 has fallen 11% in a week. Here’s my contrarian pick

Manika Premsingh
Tired or stressed businessman sitting on the walkway in panic digital stock market financial background

It’s a bad time for stock markets. The coronavirus scare has gripped global markets, leading to a sharp plunge. The FTSE is no exception to this. The FTSE 100 index has fallen by more than 11% in a week, and it might fall even more next week. The unfortunate spread of COVID-19 shows no sign of slowing. It’s easy to think of the worst that can happen at this time, get nervous, and sell off. Or, at the very least, refrain from buying.  

Alternative view 

But consider another perspective. What if the virus were to be contained in the near future? The panicked drop in share prices will look like a time when investments should have been made. Even if markets continue to drop, the fact remains that a number of high-growth and high-dividend stocks are available at huge discounts right now. These stocks have a gravity defying track-record. In other words, there’s limited risk to holding them in our investing portfolio.  

Real estate in focus 

One of these is the FTSE 100 house-builder Persimmon (LSE: PSN), whose share price has fallen by 13.8% since last week. It may sound contrarian to suggest a cyclical stock at a time when economic conditions could take a turn for the worse. But there are three reasons why I still like it.  

One, sure, the stock shows cyclicality in the near term but over the longer term, it’s more likely than not to allow for significant capital gains. Two, it’s one of the only stocks to provide both capital growth and a high passive income. At present, its dividend yield is 8.2%. It also intends to maintain its current level of dividends in the next year at least. With a falling share price, we are essentially looking at potentially even higher yields going forward. Three, UK’s real estate market is picking up, which bodes well for stocks in the sector.  

Not always contrarian 

Outside of real estate, however, I do agree that going contrarian isn’t always the best idea. Last week, I had written about how I’d stay away from financials in the case of a stock market crash. It seemed less likely then, but today I’d start to become more cautious of the sector. 

There are plenty of less contrarian stocks to invest in in any case. Pharmaceuticals and healthcare companies like GlaxoSmithKline and Smith & Nephew are two that I like. Yesterday, I had also written about Diageo, the FTSE 100 alcohol producer, which has been a good investment over the past years. It has warned of the impact on its profits as a result of the virus outbreak, but it’s too soon to say if there will be any longer-term impact on the stock. In this scenario, I’m sticking to Warren Buffett’s advice by getting greedy when others are fearful.       

The post The FTSE 100 has fallen 11% in a week. Here’s my contrarian pick appeared first on The Motley Fool UK.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Diageo. 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