FTSE 100: I’d buy cheap UK shares now

FTSE 100 stocks have roared back from the stock market crash. But it’s still a good time to buy UK shares, writes Thomas Carr.

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.

From the spring lows of the pandemic-induced stock market crash, the FTSE 100 has risen 29%, at the time of writing. That’s quite a recovery. But it doesn’t tell the whole story. Within the FTSE 100, there were plenty of opportunities to make some truly impressive returns. And there’s no doubt that many investors did just that.

Of the 100 shares that made up the FTSE 100 back in spring, 22 now have a current share price that is at least double what it was in the depths of the stock market crash. That means more than one in five FTSE 100 stocks have returned over 100% in just eight months. Of these, two stocks – Ashtead Group and Intermediate Capital Group – have seen their share prices treble. Intermediate Capital was the best performer over the period, with a £5,000 investment turning into £19,000.

Market crash means superior investment returns

Now, I’m not for a minute suggesting that it’s possible for all of us to achieve these exact returns. That would involve being able to time the market perfectly and buy at the absolute market bottom. This is very, very unlikely, to say the least. But it’s possible to invest either side of the market bottom and still make some pretty impressive returns.

The average inflation-adjusted return of UK shares has been around 5% per year, over the last 50 years (1969-2018). With a current inflation rate of below 1%, it’s apparent just how well UK FTSE 100 shares have performed since the spring. The results very much support the view that buying shares at cheap valuations leads to superior investment returns. And of course, shares tend to be at their cheapest during a stock market crash, especially one linked to a frightful, deadly pandemic.

Cheap FTSE 100 stocks

To take advantage of such investment opportunities, we need to be able to recognise when shares are cheap. I don’t think it really matters if we think share prices are going to fall further. If they look cheap, then I think it’s probably a good time to buy, as long as we’re planning on holding for the long term. Just remember, by cheap I mean that the share price is cheap considering the quality of the company and that we’re getting a lot for our money. 

That’s why my favoured investment method is a cost-averaging approach. That simply involves buying more shares when prices look cheap, and less when they look expensive. This approach would have been highly effective during this year’s stock market crash. And given that we can’t be expected to be able to time the markets to perfection, I think it’s an approach that would have produced the best returns too.

Of course, I don’t think the current recovery is over by any means. In fact, I expect the FTSE 100 to keep rising over the next year, until it gets back to its pre-Covid levels. That’s assuming we don’t get any more nasty surprises. I believe the returns above are only going to amplify over the years to come. For that reason, I think now is still a great time to buy UK shares. Even if the unique opportunities of the stock market crash have mostly disappeared. 

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 »