Right now, many FTSE 100 stocks are trading at deeply discounted valuations. I’m taking advantage of this discrepancy.
Research shows that buying stocks when they’re trading at low levels is the best way to generate high returns in the long run. Unfortunately, it’s rare for high-quality businesses to fall in value significantly.
That’s why I believe investors have to make the most of these opportunities when they’re offered.
FTSE 100 stocks on offer
Even after the recent stock market performance, many FTSE 100 continue to look cheap, in my opinion. There are a handful of businesses that stand out to me.
For example, global commodity trading house Glencore has seen the value of its shares surge in the past few months. However, the stock is still trading at a discount of around 50% to its January 2018 price.
The outlook for the global commodity market has improved substantially in recent months. The prices of many key commodities are now trading at multi-year highs. As such, I think shares in Glencore could be worth significantly more than their current market value.
Several other FTSE 100 stocks also look set to benefit from the current commodity boom. Anglo American, BHP and Rio Tinto could all report rising profits this year, thanks to booming commodity prices.
Some other companies investors could profit from owning are the pandemic’s biggest losers. These include airline IAG and cruise operator Carnival. I don’t think these firms will recover to 2019 levels of profitability any time soon. It will take them some time to pay off their pandemic debts.
Nevertheless, after recent declines, shares in these businesses appear to offer a wide margin of safety. This suggests the stocks may produce large returns for investors from current levels even if it takes some time for profitability to recover.
Long-term growth
As well as the blue-chip bargains listed above, I’m also eying a basket of growth stocks. I reckon combining growth stocks with a basket of cheap FTSE 100 stocks could help boost my returns in the long run.
Indeed, smaller corporations tend to outperform their blue-chip peers as it’s a lot easier for them to grow. Some great examples of the sorts of businesses I’ve been buying include Games Workshop and Renishaw. Both have substantial competitive advantages and unique products, which allows them to command exceptional profit margins.
What’s more, the technology sector is under-represented in the FTSE 100. With that in mind, I’ve been adding companies like Computacenter to my portfolio. As the world becomes more reliant on technology, I think business is like this are just at the start of a multi-year growth spurt.
That said, investing in technology can be risky. That’s why I favour owning these businesses alongside a basket of FTSE 100 stocks to provide the best of both worlds.
