The FTSE 100 (and global stock markets) have been very sensitive over the past few days. There are several contributing reasons for this, as I wrote about here in more detail. In short, concerns around a slowdown in China and inflation fears are two major factors. Despite this, I don’t see the volatility as off-putting provided I invest my money in the right places. So even if we continue to see jittery markets, here are several FTSE 100 stocks that I’d still happily buy.
Areas to look for
Before I get into the specific FTSE 100 stocks, I want to run through my thinking at a broad level with the reasons why I’m looking in these particular areas. To begin with, a slowdown in Chinese activity will hurt some firms more than others. For example, lower steel production leads to lower iron ore prices, hurting mining stocks. Companies that heavily rely on China as a sales market also could be hampered.
So I would steer away from these areas just now, and invest in companies that have a domestic UK client base.
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Another concern is higher inflation, which could lead to higher interest rates. Given that this would impact FTSE 100 stocks with large debt piles (making interest costs more expensive), I’d look for those that have low debt ratios. In this way, even if rates do move higher, these companies shouldn’t see much of a headwind.
Finally, a concern is that we could be walking into another stock market crash. I don’t think this is the case, but just in case I’d look to buy some defensive FTSE 100 stocks. These firms typically sell essential goods or services, meaning that demand should stay constant, regardless of the performance of the economy.
Specific FTSE 100 stocks
With those principles in mind, what specific FTSE 100 stocks can I buy? Reducing my exposure to China, I’d target banks including NatWest and Lloyds Banking Group. Both banks have core markets in the UK. NatWest has some operations in Asia Pacific, but these are mostly in India. Neither company has a large base in or around China.
A risk here is that despite not having direct exposure, these banks might suffer from contagion if investors sell out of financial institution stocks across the board.
For defensive FTSE 100 stocks, I’d consider buying Tesco and SSE. The UK’s leading supermarket saw revenue grow 6.3% last year, despite the pandemic. As for SSE, not only is it a defensive utility company, but it also offers me long-term potential gains due to its renewable energy operations. The risk for both of these stocks is that underperformance could be seen if the economy flips and starts to boom.
Finally, I’d buy Aviva shares due to the low debt-to-equity ratio of 0.42. Any figure below 1 is what I’d term as good, so 0.42 is impressive. Added to the mix is an A+ credit rating from the agency Fitch, showing that the likelihood of it defaulting on bonds is low. One risk though is the ongoing restructuring of the business to slim down, which is tough to get just right.
All of the five FTSE 100 stocks, I think, can add value and so I’m considering buying all of them at the moment.
