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Stock market uncertainty’s the ‘new normal’. Here’s how I’m investing in FTSE 100 shares now

Manika Premsingh
·3-min read
New normal sign on desk
New normal sign on desk

Let’s be clear. 2021 may not be the roller-coaster year that 2020 was, but it’s still going to be fraught with uncertainty. I expect the stock markets to be jerked around quite a bit in the year. My go-to investing strategy in this scenario is to buy FTSE 100 stocks that are relatively immune to it.

Why the uncertainty?

They way I see it, there are three key sources of uncertainty for FTSE 100 stocks to watch out for in 2021:

#1. Brexit: We’ll (hopefully) have some clarity on how Brexit will proceed by the time we enter 2021. But how smoothly the implementation takes place remains to be seen.

#2. US-China trade war: With a new president soon to be in the White House, the tone of the US-China trade war is expected to change. But will the two big economic powerhouses look eye-to-eye in 2021? That too, remains to be seen. So far, the it continues, though.

#3. Coronavirus crisis: Last, but clearly far from least, whether and how far we conquer the pandemic is still an unknown. The vaccine is here, but so is a new strain of the virus. What wins? We’ll know in time. But I think we should pencil in continued uncertainty on this count.

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FTSE 100 stocks to buy now

As difficult as this environment sounds, the fact is that some shares are still well-placed to make gains even then. I see much growth possibility in three kinds of stocks:

#1. The untouched: We’ve seen for ourselves in 2020 how some stocks were barely dented while others actually improved their performance. This is the first set that I’d consider buying from. Healthcare stocks like the FTSE 100-listed Hikma Pharmaceuticals is one example. It’s manufacturing Covid-19 medication, has healthy financials, and a low earnings ratio of 12.2 times. Its share price is also firmly on the upswing.

#2. The bargains: Next, I’d look at bargain stocks. These are shares trading at low earnings ratios despite the company’s solid credentials. There are various reasons that such a company’s share price could have dropped, like the stock market crash, an uncertain economic outlook, or just as a short-term blip.

While many high-quality FTSE 100 stocks fell in the category after the stock market crash, they’ve quickly gained ground in anticipation of an improved outlook for 2021. Alcohol giant Diageo is among these. Its share price showed a sharp upturn in November and is finally back to its pre-Covid-19 levels. I’ll buy it if its share price slides down again.

#3. The dispersed: Finally, I’d consider companies that are geographically dispersed. In this case, even if there’s stress in one of the markets it serves, the others can cushion the blow. A good example of this is the FTSE 100 multinational consumer goods giant Unilever, which incidentally has a huge presence in Asia. Moreover, as a producer of consumer staples, it’s guaranteed a minimum level of sales irrespective of the state of the economy.

The post Stock market uncertainty’s the ‘new normal’. Here’s how I’m investing in FTSE 100 shares now appeared first on The Motley Fool UK.

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More reading

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, Hikma Pharmaceuticals, and Unilever. 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