It looks like July is ending up with a bit of a wild ride for the FTSE 100. After UK shares slumped on Covid-19 ‘Freedom Day’ last Monday and US markets followed, fears of a renewed stock market crash were growing. But the index closed on Friday above the 7,000 point level, up 19.5 points on the week.
So it was a week in which the market went nowhere overall, but took a roundabout route getting there. And I wonder how much short-term traders spent in transaction fees trying to get in and out at the best possible moment? For me, that was a week that hammered home the ‘stay calm and invest for the long term’ message.
But markets are twitchy these days, and some stocks are especially volatile. So, as we head towards August, what’s the best way for long-term investors to capitalise? What are the best shares to buy?
FTSE 100 dips
I see two ways to address times like these. One is to look for the biggest ups and downs and try to make the most of buying on the dips. For example, Rolls-Royce shares were once again lurching heavily. The stock was one of the biggest losers on the Monday. But like the index itself, Rolls’ shares came back to end the week ahead.
Then there’s International Consolidated Airlines, which had a similar week. An early dip was followed by a quick recovery. So would I buy either of these in August? I would only buy a stock that I would go for in normal circumstances. It would be one I’d have wanted to buy even before the pandemic, and to hold for the long term.
Would I buy?
On that score, Rolls-Royce is always on my FTSE 100 watchlist. But I’m still waiting until the company’s liquidity uncertainty lifts. As for IAG, it might well be a decent buy now. But for me it fails the same test that Rolls passes. I’d never buy an airline in good times, so I won’t buy one today just because it might look extra cheap.
Another option for uncertain times like these is to look at the stocks that are more resilient in the face of these short-term shocks. For example, housebuilder Taylor Wimpey dipped a little on Freedom Day. But the shares rebounded more strongly than the FTSE 100. That makes me think investors see less downside going into August, and for the rest of the year.
Would I buy Taylor Wimpey shares? Well, there’s a danger that escalating virus infections as we head away from the summer months could crimp the business again. But if I didn’t already have enough money invested in Persimmon, it would be a yes for me.
Another approach for me is to look at stocks that enjoyed a pandemic bonus and that have since fallen back. My favourite there, outside the FTSE 100, is Boohoo. Renewed interest in high street retailers has seen Boohoo cooling off. But I bought for the long term, not for the Covid blip. So a top-up is a definite possibility.
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Alan Oscroft owns shares of Persimmon and boohoo group. The Fintech Zoom UK has recommended boohoo 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 Fintech Zoom we believe that considering a diverse range of insights makes us better investors.