We are still only in the early stages of the post-coronavirus stock market recovery. With the FTSE 100 standing at 6350, it is more than 1,000 points below its 2020 starting position. This leaves plenty of scope for growth in 2021, provided those vaccines work.
I’m under no illusions, the stock market recovery will be bumpy. Millions of jobs are surviving on government support. When furlough ends in the spring, we are likely to face an unemployment shock. That will feed into the rest of the economy. At times, 2021 could feel much worse than this year.
Despite these concerns, I’m still buying shares today, because my investment horizon is a minimum 15 years, not the next 15 months. Over such a lengthy period, I believe UK shares will beat almost every other asset class, as they have done in the past. You have to choose wisely, though, to maximise your returns.
The FTSE 100 is fighting back
When picking out five FTSE 100 shares to play the stock market recovery, my first thought was to buy an airline. My second thought was it’s too risky, as their debts continue to mount. I have therefore plucked a stock from another embattled sector, banking. My choice here is Barclays, which has a diversified income stream, with its investment bank doing particularly well lately. Crucially, it is also well capitalised. Strict post-financial crisis regulation has served the banking sector well.
Next, I would buy household goods giant Unilever. Frankly, I haven’t seen a time when I wouldn’t buy this FTSE 100 stock, which enjoys strong demand for its range of branded products. I’m expecting steady capital growth and dividend income over the years ahead.
I favour credit rating specialist Experian as another good long-term buy and hold, as it should benefit from growing global demand for its information services. Profits have been hit by the lockdown, and may stay low in the short term as banks carry out fewer credit checks with people reluctant to borrow. It’ll bounce back, though, and I’d buy it ahead of the next phase of the stock market recovery.
I’m buying now before the stock market recovery
This year has shown the importance of having exposure to the defensive healthcare sector, and here I would buy AstraZeneca. Its vaccine plans suffered a slight setback, but I’d take advantage of the subsequent share price dip. The AstraZeneca share price is actually down 10% in the last six months, but its long-term income and growth prospects look solid to me.
My final pick for the stock market recovery is Schroders. Any asset manager that can grind its way through a tough year like this one and still increase its assets under management deserves our respect.
Another attraction of these five FTSE 100 stocks is that with the exception of Barclays, all pay dividends (I’m sure Barclays will be back, shortly). Unilever yields 3.11%, Experian 1.40%, AstraZeneca 2.76%, and Schroders 3.52%. You can find higher yields but these look sustainable to me, with plenty of scope for progression, too. Now roll on the stock market recovery.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, Experian, 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