The stock market crash caused many shares to become undervalued across a wide range of sectors. While some have recovered to a large extent, there are still opportunities for long-term investors to generate high returns.
With monetary policy stimulus likely to lead to an improving economic outlook, and the stock market having a solid track record of recovery, now could be an opportune moment to buy high-quality businesses. Over the long run, it could even lead to you obtaining a seven-figure portfolio.
Cheap stocks after a market crash
The prospects for a number of industries continue to be uncertain. For example, changing consumer trends could impact on the retail sector, while weaker demand for resources may cause challenging financial prospects for many oil and gas companies.
Therefore, there are still a number of stocks that appear to offer wide margins of safety. Certainly, many of them aren’t as cheap as they were a number of weeks ago during what was one of the fastest declines in the stock market’s history.
But investors who are looking to use the stock market’s cyclicality to their advantage, in terms of buying at low prices and selling at higher prices, appear to have a number of opportunities available.
Economic recovery
The market crash suggests investors are downbeat about the economy’s near-term outlook. While this may prove to be correct, in the long run, the world economy has a solid track record of delivering positive growth following its recessions.
For example, it recovered to post strong growth following the global financial crisis. There were times during that downturn when it felt as though economic growth would never return. The same prospects may be felt by some investors in the coming months. But with major fiscal and monetary policy stimulus, a successful economic recovery seems highly likely.
Economic growth is likely to produce increasingly favourable operating conditions for most sectors. This could boost their earnings growth rates and lead to higher stock prices in the coming years.
Relative appeal
The crash may also have dissuaded some investors from buying equities in the near term. They may currently favour less risky assets, such as bonds and cash, in order to preserve the value of their portfolios.
However, over the long run, investor sentiment towards stocks is likely to improve. The return prospects available from other mainstream assets could prove to be highly disappointing, due to low interest rates that may now be present for a number of years.
This lack of relative appeal may lead to rising stock prices over the coming years that lifts the value of your portfolio. Through buying shares today while they are undervalued, you could generate high returns that increase your chances of making a million.
