One FTSE 100 stock I’d buy and 1 I’d avoid in this stock market crash
The stock market crash may still be keeping investors on edge, but there are developments outside of the coronavirus crisis that are quietly at work as well. One of these is the recent reshuffling of stocks in the FTSE 100 list of companies. Asset manager Intermediate Capital Group (LSE: ICP) is a new entrant to the list.
Positives to note
Like all other FTSE 100 stocks, ICP has also seen a sharp fall in share price in the past weeks. And I’ve myself suggested steering clear of financials in a stock market crash. ICP may well suffer from the crash too, as an economy-sensitive stock. But as a long-term investor, I think this is also an opportune time to consider buying a promising stock.
ICP has got a fair bit going for it. It’s assets under management have been on the rise over the past years, and it has also shown healthy profits over time, even if they’re not consistently rising. The company’s share price has shown a steep rise in the past year.
With the backdrop of its growth and financials, that makes it worth considering as a growth stock. Besides this, it has also increased its dividends per share overtime. It’s dividend yield is 5.3% at present. This is below the FTSE 100 average of 7%, but far from being anywhere near the lowest too.
Risks ahead for this FTSE 100 stock
But the FTSE 100 average yield is a bit misleading at the moment anyway. Yields look high because share prices have dropped sharply, not because the companies are generating high incomes and distributing them to shareholders. In fact, a number of FTSE 100 companies’ dividends are being cut as I write, and more could at least reduce dividends.
A case in point is the FTSE 100 leisure travel provider Carnival Corporation (LSE: CCL). Its dividend yield is a high 13.3%. Can it be sustained? That’s a wait and watch for CCL, which has hit upon some awful luck because of travel bans.
As a financially stable company, CCL could weather a recession. But this is a most atypical situation. The challenge that CCL suddenly faces is unlikely to be resolved anytime soon. We are talking months before leisure travel could begin again.
Moreover, CCL operates in a cyclical industry. If we are looking at an economic slowdown even after the crisis is resolved, there’s a huge business loss on CCL’s horizon. I think it may be at least a few quarters, if not more, before business starts turning around for the company. I’d wait for signs of a turnaround before investing in the stock.
There’s been some runup in its price in the past days, and I suspect there may be more by the time the turnaround begins. But I’d be happy to pay a higher price as a premium for risk aversion.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. 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