5 Reasons to Buy FTSE 100 Stocks Amidst the Bear Market Scenario

The COVID-19 pandemic continues to weigh heavily on the global and domestic markets and economies. The number of infected cases is surging by every passing day. What started with few cases being reported in China in December 2019, has now spread to the world over with infected people in almost every nation.

The severe spread of the virus has put to a complete halt to the economic activities across various countries. It has disrupted routine activities of several nations and bringing all the activities at a standstill, which led to distorting their economic growth. Many economies have announced complete or partial lockdown to contain the spread of the novel coronavirus and avoid a crisis like situation.

The UK economy is also getting hit hard by the novel virus. The first case of COVID-19 was reported on 09th February, 2020, and since then, the number of cases has been on a surge. The unique pandemic has left equity investors high and dry across the universe; there is hardly any segment which has escaped the adverse effect of the outbreak. Investors are astonished by the sudden fall in the markets globally, as there has been a bloodbath in the financial markets all across. With the benchmark index of the UK – FTSE 100 index plummeting ~ 26% on a YTD basis. The fall in the UK market has been relatively higher as compared to the slump in global counterparts like the S&P 500, TSX 300 Composite Index etc.

However, despite a relative underperformance of FTSE 100 stocks, there are solid reasons why investors should go for shopping on LSE.

1. Higher Dividend Income Pockets Amidst Low-Interest Rate Regime

Amidst a lower interest rate regime, one can't find the yield, when there is so much liquidity entering through the Central Banks. Recently the Bank of England has slashed interest rates to an all-time low of 0.1, and this was precisely exercised to limit the economic fallout from Coronavirus pandemic. However, UK's FTSE 100 is the index for several global quality companies which are yielding higher after a steep correction took place recently. They are investment-grade blue-chip companies and managed by sheer proficient leaders. The averages dividend yield of FTSE 100 constituents' companies stood at ~ 5.1% higher than its peer S&P constituent's average dividend yield of ~ 3%. Also, despite a steep correction in the global equity markets, the average Advanced economies’ broader indices dividend yield stood at 4.1%, which implies a relative outperformance of 100 bps between FTSE 100 dividend yield and Average Advanced economies dividend yield (like US, Canada, Germany, Italy, France). The FTSE 100's dividend yield offers great income opportunities for investors within the UK's blue-chip arena.

2. World’s Best Hygiene, and Homecare Companies traded on LSE

COVID-19 led a demand spurt for hygiene and home care products. Globally recognised top hygiene, personal care and home care products are brands from the UK which includes several household names like Dettol, Harpic, Lysol, Mortein, Gaviscon, Air-wick, Lifebuoy, Lipton, Domestos, Aquafresh, Clearasil. Also, British hygiene and healthcare products are in a unique position to make a difference in the world amid the widespread of the novel coronavirus. The demand spike for the offerings of British hygiene and homecare companies will drive revenue and earnings in CY20. Also, using disinfectants like sanitisers and soaps are the message lauded by international and state healthcare organisations like WHO and NHS. Some of globally well-known household hygiene and home care companies are Reckitt Benckiser Group PLC (RB.), Unilever PLC.

3. Past Multibaggers Are at Multiyear Lows – Potential Value Opportunities

The recent market crash has brought down many past FTSE 100 multi-bagger stocks to dirt-cheap price and valuation. According to data compiled from Thomson Reuters, there were about 39 FTSE 100 stocks which have delivered a multibagger return between 31^st December 2014 to 31^st December 2019, which include several blue-chip names like EVRAZ PLC, Informa PLC, Anglo American PLC, Taylor Wimpey PLC, InterContinental Hotels Group PLC, Barratt Developments PLC, Hargreaves Lansdown PLC, 3i Group PLC, Intermediate Capital Group PLC, JD Sports Fashion PLC and many more. The pandemic is offering huge value pick opportunities for investors. These stocks are down up to 60%, led by COVID-19 sell-off in the market. Many of them are quality businesses run by a quality management team.

4. The market of Global Utilities Companies – A Defensive Play during a market crash

Utility companies are important business across the world; in this hard time when all the businesses have been facing a severe crisis, the utility is crucial to cater to the essential need of the consumers. The utility is not only a necessity and required for the advancement of the society but are equally important for the economy as well. Also, these companies do well regardless of the economic cycles, because of the bare essential nature of their offerings. That's why they are also considered as defensive stock, which minimises risks of the overall portfolio performance. Further, they pay consistent, generous dividends as well, which bring them in the limelight amid a lower interest rate regime. There are many world-class utility companies trades on the London Stock Exchange, and their operations are not restricted to the UK boundaries only; instead, they offer utility services in many developed and developing market as well. Several global utility companies which are listed on LSE include names like National Grid PLC, Severn Trent PLC, Centrica PLC etc.

5. 33 FTSE 100 Constituent Stocks Trading Below Book Value

Book value is the net value of a company's assets quoted on its balance sheet. It is also known as the Net worth of a company, calculated as; Book Value = Assets – Liabilities. It reflects the value of the business if liquidated. Typically, a stock price below book value per share is considered as undervalued stocks, and if they are fundamentally sound enough, they will soon start trading above their book value per share. At present there are 33 FTSE 100 companies having Price-to-Book Value ratio below 1, which implies undervalued stocks, however, if there is some fundamental problem with the company, then only this valuation is justified otherwise they can be considered as undervalued stocks or stocks which are available below their intrinsic values. However, to analyse carefully one should look for those companies which are trading below their book value, but the Return on Equity is higher than the Weightage Average Cost of Capital because company's whose ROE is higher than the WACC, which tends to command a P/B ratio above 1 or trade above their book value.

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