I look back over the FTSE 100 and think “Have I missed the stock market recovery?” Since March 2020 in the depths of the crash, the Footsie has gained around 35%. So am I now too late to take advantage of surging share prices?
I think looking at the Footsie alone gives a skewed view. It shows what the market has done as a whole, but it’s silent on which stocks might have great recoveries still ahead of them. Look at Rolls-Royce and International Consolidated Airlines (IAG), both hammered by the travel downturn.
Neither has yet recovered. The Rolls-Royce share price is down around 65% over the past two years, while IAG shares have fallen closer to 70%. So, have I missed the stock market recovery? I haven’t missed a recovery in those two, that’s for sure. I think, in a few years’ time, both will probably have come back strongly. But I reckon there’s still a big risk that they could need more funding, and any potential recovery could be set back even longer.
Recovery versus risk
That brings me to a conscious decision I made. I vowed not to invest in shares I considered very risky, no matter how cheap they might look. No, I’d rather wait until I see positive signs of recovery in their underlying businesses. It meant I’d miss some of the biggest share price gains, for sure. But I’m happy to avoid the risk and settle for what I see as safer, if possibly lower, long-term recovery profits. So when I ask “Have I missed the stock market recovery?” the answer is a partial yes, but deliberately as part of risk avoidance.
So what am I looking at? I’m after sustainable, progressive, dividends. And I reckon there are plenty of attractive dividend stocks out there still at bargain prices. On that score, I bought some City of London Investment Trust shares. The investment trust has lifted its annual dividend for 54 years in a row, and currently offers a 4.8% yield. Even after a partial stock market recovery, I still see good yields to lock in for the long term.
So what can I do to benefit from the recovery?
In another sector, I think the banks are still good buys. Their dividends are already coming back. And bank share prices, and valuations, still look depressed to me. There’s always a risk that bad debts will bite harder than feared, and the sector could face a few more weak years. But I reckon that if I buy more bank shares now (I hold Lloyds Banking Group), I’ll still be taking advantage of the longer-term stock market recovery that I see ahead of us.
This all brings me to the bigger, long-term, picture. The UK stock market has had a pretty awful decade. And I see the Covid-19 stock market crash as part of a longer-term weak trend for share prices. That might even be part of the reason for the relatively quick short-term recovery — that shares were undervalued to start with.
So, I’ll ask myself one last time: Have I missed the recovery? Not really. I’ve missed part of the Covid-19 crash recovery, though I really don’t think all of it. I see a longer-term recovery ahead, and I’ve not missed that.
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Alan Oscroft owns shares of City of London Inv Trust and Lloyds Banking Group. The Motley Fool UK has recommended 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 2021