The FTSE 100 may have recovered some of its lost ground over recent weeks, but a number of cheap shares continue to offer long-term total return potential.
Buying them now may not lead to high returns in the short run due to ongoing risks such as the potential for a spike in coronavirus cases later in the year.
However, taking advantage of attractive valuations among high-quality companies could improve your financial position in the coming years and help you to retire early.
As such, now could be the right time to buy these two stocks with £5k, or any other amount.
FTSE 100 utility stock Severn Trent
Utility stocks such as Severn Trent (LSE: SVT) have generally outperformed the FTSE 100 over the last few months. The company reported a resilient operational and financial performance in its recent annual results. Its lower reliance on the performance of the wider economy may mean that it is able to more easily overcome what may prove to be a challenging period for many businesses.
Furthermore, Severn Trent could become an increasingly popular stock among income-seeking investors. It currently has a dividend yield of around 4%. This is relatively attractive as a result of many of its index peers having cut their dividends, or having the potential to do so in the coming months. It is also likely to appeal to investors while interest rates are at historic lows, which could prove to be a sustained period of time as policymakers seek to support the economy’s prospects.
Therefore, Severn Trent may lack the recovery potential of some of its FTSE 100 index peers. However, its defensive qualities and income appeal may mean that demand for its shares rises, and that it offers resilient total returns in the long run.
Standard Life Aberdeen
The share price of FTSE 100 wealth management business Standard Life Aberdeen (LSE: SLA) is still down by 22% since the start of the year despite its recent rise. A weak economic outlook is likely to weigh on financial markets, which could have a negative impact on its performance in the short run.
The company’s most recent trading update highlighted its balance sheet strength. It was able to dispose of assets over the last few months to further improve its financial standing. It has also been able to maintain its operations despite lockdown restrictions, while a relatively positive performance in terms of its assets under management suggests that it has long-term recovery potential.
Standard Life Aberdeen may experience a period of high volatility should a global economic downturn cause investor sentiment to decline. However, over the long run its business model and strategy suggest that it offers good value for money after its recent share price fall during the FTSE 100’s market crash.
