Stock market crash: I’d buy bargain FTSE 100 shares now

There are real bargains to be had following the stock market crash, writes Thomas Carr. But you need to balance risk with reliability.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Covid-19 and the stock market crash have made life extraordinarily uncertain. That makes our task as investors particularly hard. Normally, we can value a company’s shares based on future cash flows or profits. Even before the onset of the virus, estimating future earnings was difficult. It has now become virtually impossible. How can we value shares if we have no idea what earnings will look like in six months’ or year’s time?

How would I invest now?

First of all, I would stick to ‘value’ stocks that are trading below what they’re really worth. They generally have a lower risk profile than growth stocks and usually have earnings that are predictable and steady. They tend to be stable companies that will perform well under a range of different economic conditions. They’re the companies that even today, are often able to operate at somewhere near normality, like Sainsbury’s or Mondi.

They may not double your money in one year, but they’re the kind of investments that should deliver steady returns year after year. In today’s circumstances, this is exactly the kind of investment that I’m looking for.

Growth stocks can be great. But they’re also riskier. Investors usually end up paying a much higher price for the hope of future growth. And this growth may not come to fruition, especially in the current climate. Stocks that continuously fail to miss growth expectations are likely to sooner or later suffer the effects of gravity, as the stock market crash showed only too well. As a general rule, when the economic backdrop becomes more uncertain, I want to invest in stocks that are more certain.

Stable returns in the stock market crash

Value stocks aren’t boring either. They often come with high dividends of 4%+ and generate solid returns on capital. Once earnings and dividends have been compounded over years, they’re likely to produce impressive returns for investors. Even better, they generally do this with less volatility than their riskier counterparts. After the stock market crash, there’s no shortage of stocks that fall into this category.

I would also avoid investing in companies that look like they could blow up at any time. In the current climate, companies need to have strong balance sheets, to be able to weather the storm. Right now, a strong balance sheet is more attractive to me than growth. After all, what use is future earnings growth if a company goes bust beforehand?

Having said that, I could be tempted to take on riskier stocks, if the price was low enough and I had many years of investing ahead of me. The low price would compensate for taking on the extra risk, with outsized gains being the potential reward. 

Following the stock market crash, there are some interesting opportunities out there, for those prepared to take on extra risk. For a start, insurers and banks look too cheap to me, especially given their strong balance sheets and solid business models. For those feeling even more adventurous, it may be worth looking at airline stocks, given their price levels. Just be aware that in a pessimistic scenario, they won’t look so cheap. I’d always balance any riky plays on future fast growth with more reliable stocks in a portfolio. And the closer I get to retirement, the less risk I’d want to take.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Thomas has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »

Electric cars charging at a charging station
Investing Articles

Big news for Tesla stock investors!

Tesla has just quietly dropped a key target it set for itself just a few years ago. What does this…

Read more »