1 FTSE 100 share to buy and hold for 10 years
The FTSE 100 Stock Ds smith (LSE: SMDS) saw its share price rise 9% over the past month. It was helped by a strong spike yesterday which was no coincidence. The packaging supplier released a positive trade update yesterday, which was clearly well received by investors.
Can it still increase in the short term?
Even more impressive is its performance over the past year, with a 57% share price increase. Still, I don’t think it’s a stock to hold in the short term. In fact, I think over the next few months or so it might just show unenviable increases. The first reason is the soaring share price that it has already experienced.
As the beneficiary of the increased reliance on online sales during the lockdowns, DS Smith experienced unexpected growth after an initial wobble when the pandemic struck. Its price / earnings (P / E) ratio is now almost 35 times. It is certainly not the highest among stocks in the FTSE 100, but I can think of many examples of stocks with high potential and lower P / E. In addition, there is no guarantee that growth will continue at the high rates of last year now that we have returned to normal, hopefully for good.
Structural changes in its favor
However, I believe that in the long run its stock price can provide significant returns. Structurally, there is a continuous shift towards online shopping. As a consumer, I myself have become much more e-shopping oriented and I think this is true for many others. This also explains why the segment continues to show strong growth even though the bottlenecks have been lifted.
In its commercial update, DS Smith alludes to this also. It says “The long-term structural growth drivers of e-commerce and sustainability have been accelerated by the effects of Covid ”. In addition, he says e-commerce is a priority for him, supported by an investment in technology.
Cyclical support of the FTSE 100 title
A recovery in the economy can also impact positively in the medium term, mainly because a rising tide lifts all boats. So far, the global economy is recovering well. This is a cyclical or medium-term positive point for this multinational. Even if we fall back into confinement, it appears that nothing can go wrong for the e-commerce ecosystem for now, as demand for its products may increase again.
For these reasons, I think DS Smith is a good buy for my wallet even today. I would also consider it in the context of other FTSE 100 paper and packaging suppliers like Mondi and Smurfit Kappa.
I’d watch out for cost inflation, though, which was on all of their radars earlier in the year. However, DS Smith now reports that he has successfully passed on the increased costs. Inflation is widely seen as a transitory phenomenon for now. Central banks see it as an effect of the adjustment underway after the loosening of the lockdowns. There are those who believe that it can persist over time, however. If so, I’m not sure how much pricing power the company can continue to show.
Overall, I like the FTSE 100 stock and would buy and hold it for the next 10 years.
Manika Premsingh has no position in any of the stocks mentioned. The Motley Fool UK recommended DS Smith. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.