Is this market correction a brilliant buying opportunity for Stocks and Shares ISA investors?
Itâs now peak season to load up a Stocks and Shares ISA. The deadline’s midnight on Sunday April 5 and with Easter in the way, in practice itâs probably sooner. The £20,000 allowance is a brilliant opportunity, and one not to miss. It lets Britons tuck money away for life, free from income tax, dividend tax and capital gains tax.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Thereâs no denying it, this is a spooky time to buy shares. Global stock markets remain on tenterhooks as investors wait to see the next turn of events in the Middle East.
FTSE 100 investors must be brave
The FTSE 100‘s already had a correction, defined as a fall of at least 10%, and there could be more volatility to come. We wonât know from one day to the next. There’s one thing we do know. Loads of top blue-chips are already available at greatly reduced valuations, and offer higher yields too. Many investors relish moments like these.
The key is to choose targets carefully, and only buy with a long-term view of at least five years. That gives time for short-term volatility to pass, as it always does. Weâve already had three market shocks this decade, triggered by Covid the Russian invasion of Ukraine, and Donald Trumpâs âliberation dayâ tariffs.
Each time, markets rebounded strongly. Those brave enough to buy at the point of maximum fear were rewarded. But as ever with equities, there are no guarantees.
Investors have options. They could target companies likely to benefit from todayâs uncertainty, such as oil giants BP and Shell, or defence group BAE Systems. Alternatively, they could stick with steadier performers such as Admiral Group or a defensive stalwart British American Tobacco.
Reckitt’s dirt cheap today
Another approach is to look for stocks that have taken a beating and look better value as a result. Around 10 FTSE 100 companies have crashed 20% or more in the last month, including consumer goods group Reckitt Benckiser (LSE: RKT).
Reckitt, which owns brands such as Dettol, Nurofen, Durex and Gaviscon, looks strikingly cheap. Its price-to-earnings ratio has collapsed to just 0.55, having been above 20 not so long ago. Yet the underlying business is still delivering. On 5 March, it reported a solid 5% rise in full-year revenues to £14.2bn, driven by strong growth in emerging markets. Adjusted pre-tax profits climbed 5.2% to £3.32bn.
The board also lifted the full-year dividend by 5% to 212.2p, on top of a chunky special payout earlier this year. Today, the trailing yield stands at 4.25%. That’s a lot more than usual.
However, the stock was struggling even before Iran. The Reckitt share price is flat over one year and down 20% over five, as consumer goods stocks fell out of favour and demand softened in Europe. The current crisis will double down on that. Reckitt has also struggled to rebuild investor confidence after a patchy few years. There’s no guarantee they’ll come flocking back.
Personally, I think itâs worth considering with a long-term view. But investors will need patience. For those willing to be brave, this could be a rare chance to buy quality FTSE 100 shares at reduced prices. But only with that long-term horizon.
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Harvey Jones has positions in BAE Systems and Bp P.l.c. The Motley Fool UK has recommended Admiral Group Plc, BAE Systems, British American Tobacco P.l.c., and Reckitt Benckiser Group Plc. 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.
