The FTSE 100’s recent decline has taken many investors by surprise. The index had traded close to a record high in January, but has since experienced a correction as investors have become increasingly concerned about the impact of coronavirus on the world economy.
While further falls cannot be ruled out in the short run, buying now for the long term could be a shrewd move. It may enable you to generate high returns, with these two stocks appearing to have recovery potential following their 15%+ declines over recent weeks.
The share price of ABF (LSE: ABF) has fallen by around 18% since early February. A slowdown in the world economy’s growth rate could negatively impact a number of its divisions, while the prospect of increasing self-isolation may mean that demand within its retail operations comes under pressure, especially as it doesn’t sell online.
In fact, its recent trading update highlighted that its supply chains may experience a degree of disruption due to the coronavirus outbreak. Its retail operations in China may also experience a challenging period, depending on how long the coronavirus outbreak lasts.
Despite this, the company is on track to deliver improving financial performance in the current year. It is then forecast to post an 8% rise in net profit next year, which could cause investor sentiment towards its shares to improve.
Therefore, while the stock still trades on a relatively high price-to-earnings (P/E) ratio of 15.3, it appears to offer good value for money compared to its historic average valuation. As such, now could be the right time to buy a slice of ABF, with its diverse operations and solid balance sheet potentially providing a sound risk/reward opportunity for long-term investors.
Concerns surrounding the prospects for the world economy have also weighed on oil and gas companies such as BP (LSE: BP). The stock’s price has fallen by around 17% since its 2020 peak reached in early January. Investors are concerned about the future demand for oil and gas, which has contributed to price weakness in recent weeks.
Lower oil and gas prices could lead to BP missing its financial guidance over the near term. Even though it has a diverse range of market segments and has been able to expand its operations through investment over recent years, it is reliant on the prices of the commodities it sells.
However, investors seem to have priced-in the prospect of a weaker financial performance from the business. For example, it trades on a P/E ratio of 10.9. This suggests that it offers a wide margin of safety, and that it could offer a favourable risk/reward opportunity.
Of course, BP’s share price could fall further. But, for investors who have a long-term time horizon, it may prove to be an attractive buying opportunity at the present time.
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Peter Stephens owns shares of BP. The Motley Fool UK has recommended Associated British Foods. 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.