The FTSE 100’s recent market crash means many of its members now trade on low valuations. Their share prices could move lower in the short run, depending on how the coronavirus outlook changes. But in the long run, there could be high total returns on offer.
As such, now could be the right time to buy and hold a diverse range of large-cap shares. Here are two companies that could offer good value for money. They may deliver improving total returns in the coming years when purchased in a Stocks and Shares ISA.
The prospects for supermarkets such as Sainsbury’s (LSE: SBRY) have changed dramatically over the past couple of months. Demand for a range of its products has increased significantly. We saw it as social distancing rules came into force and now as consumers react to the lockdown currently in place across the UK.
The company’s stock price has also experienced a major change. It is down by 11% since the start of the year, and now trades on a price-to-earnings (P/E) ratio of just 10.9. This suggests that investors have priced-in a wide margin of safety, and the stock could offer good value for money.
Of course, Sainsbury’s is likely to continue to face challenges. These include a highly competitive marketplace and weak consumer sentiment, over the coming years. However, its most recent quarterly update highlighted the success of its digital investments. Its online grocery sales increased by 7.3%, while its plans to cut costs and invest an increasing amount of capital in its supply chain could pay off in the long run.
As such, the retailer could represent a long-term buying opportunity. It appears to offer significant growth potential from its current stock price level.
Another FTSE 100 stock which has experienced a large decline in its valuation is HSBC (LSE: HSBA). Its shares are down by 14% since the start of the year, as investors have factored in the potential for a global economic slowdown.
Of course, HSBC’s most recent results showed that the bank was experiencing mixed trading conditions prior to the impact of coronavirus on the economy. For example, it recorded a $7.3bn goodwill impairment charge and reported relatively weak trading conditions in its commercial banking business in Europe.
The bank plans to deliver an improved performance over the next couple of years through simplifying its operations and reducing costs. This could help it to overcome potential economic weakness in the short run. Furthermore, HSBC’s large presence in Asia may mean that it recovers faster than some of its European-focused peers. Countries such as China appear to be further along in their battle to beat coronavirus, and may report stronger economic performance in the short run.
With the stock trading on a P/E ratio of around 9.7, it seems to offer good value for money. It may produce high returns in the coming years.
It’s ugly out there…
The threat posed by the coronavirus outbreak has spooked global markets, sending stock prices reeling.
And with the Covid-19 virus now beginning to spread beyond of China and Italy, it seems very likely that the bull market we’ve enjoyed over the past decade could finally be coming to an end.
Against such a backdrop of market worry, it’s little wonder that many investors are starting to panic. (After all, nobody likes to see the value of their portfolio fall significantly in such a short space of time.)
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.