Is it time to buy these battered FTSE 100 stocks?

I think these three FTSE 100 stocks have plenty of long-term potential and they are still cheap following March’s stock market crash.

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.

There are plenty of FTSE 100 stocks trading well below where they were a year ago. The stock market crash in March shaved chunks off the share prices of the UK’s largest companies. September’s sell-off trimmed gains that were made during the recovery that followed.

It’s a tricky time for investors. Right now, there are a lot of FTSE 100 stocks that – judging them on current prices only – look like bargains after the stock market crash. But, low prices do not always mean something is a bargain. It might just be of low quality. And we do not want to own low-quality stocks.

Cheap FTSE 100 stocks

Shares in BAE SystemsCompass Group, and BP all trade at a discount to where they were a year ago. I think their long-term prospects make them bargains and not just cheap, and that’s why I think it’s time to buy these three FTSE 100 stocks.

Shares in BAE systems traded at 669p before the crash. They can be had for 494p now, which is a 26% discount. Half-year results revealed earnings dropped by 15%. BAE makes electronic components for airliners, and that business has all but vanished. However, overall revenue growth has held up well. 

BAE’s order book remains strong, particularly in the defence space. Government defence budgets are expected to grow in real terms, which is a long-term boon for BAE. The company’s management is confident about the medium- to long-term prospects for the firm. Evidence for the confidence comes from the decision to pay a delayed 2019 dividend in September and an interim 2020 one in November. The dividend yield should be around 4.9% on this stock.

The Covid-19 pandemic destroyed demand for Compass’s catering services. Revenue dropped 44% year-on-year for the three months up to June 2020. The share price of this FTSE 100 company is 1,230p now. That is 37% below its pre-crash stock price of 1,953p.

However, demand is growing again for catering services. In China, they have recovered completely. In Europe and the US, office attendance is still below average. But this will improve over the months and years ahead. Compass benefited from a trend for companies to outsource catering. If fewer people work in offices in the future, I think this drives the trend forward. A reduced canteen service, which might need to be flexible, supports outsourcing.

Renewed energy

Suggesting that it is time to buy an oil and gas FTSE 100 stock, like BP, might sound mad, but oil won’t go away overnight. BP has got rid of underperforming assets, making it a more focused oil and gas company with lower costs. It bought a shale oil asset to diversify its revenue stream. The company is positioned to benefit from a recovery in oil prices.

BP’s gas assets should have a brighter future than its oil ones. Gas is cleaner than oil as an energy source and will stay a part of the energy production mix longer, as the world transitions to a renewable future. BP has already invested in non-oil and gas energy projects and is continuing to increase its wind, solar, and biopower capacity. Moving away from fossil fuels and towards alternatives gives BP a far longer future than its current share price suggests.

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.

James J. McCombie owns shares of BAE Systems, BP, and Compass Group. The Motley Fool UK has recommended Compass Group. 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

5 UK shares I’d put my whole year’s ISA in for passive income

Christopher Ruane chooses a handful of UK shares he would buy in a £20K ISA that ought to earn him…

Read more »

Investing Articles

£8,000 in savings? Here’s how I’d use it to target a £5,980 annual passive income

Our writer explains how he would use £8,000 to buy dividend shares and aim to build a sizeable passive income…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

£10,000 in savings? That could turn into a second income worth £38,793

This Fool looks at how a lump sum of savings could potentially turn into a handsome second income by investing…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

I reckon this is one of Warren Buffett’s best buys ever

Legendary investor Warren Buffett has made some exceptional investments over the years. This Fool thinks this one could be up…

Read more »

Investing Articles

Why has the Rolls-Royce share price stalled around £4?

Christopher Ruane looks at the recent track record of the Rolls-Royce share price, where it is now, and explains whether…

Read more »

Investing Articles

Revealed! The best-performing FTSE 250 shares of 2024

A strong performance from the FTSE 100 masks the fact that six FTSE 250 stocks are up more than 39%…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

This FTSE 100 stock is up 30% since January… and it still looks like a bargain

When a stock's up 30%, the time to buy has often passed. But here’s a FTSE 100 stock for which…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

This major FTSE 100 stock just flashed a big red flag

Jon Smith flags up the surprise departure of the CEO of a major FTSE 100 banking stock as a reason…

Read more »