The FTSE 100’s market crash is not yet showing signs of ending. The index could experience further declines in the short run if news flow concerning coronavirus fails to improve over the coming weeks.
This may present a problem for short-term investors. But it could be a buying opportunity for long-term investors. A wide range of FTSE 100 stocks now trade on low valuations following major share price falls.
Here are two prime examples of strong businesses. I think they could deliver recoveries in the long run as the prospects for the world economy gradually improve.
Coronavirus is having a significant impact on the operations of Premier Inn owner Whitbread (LSE: WTB). It has closed all of its hotels in the UK and Germany. Therefore, it is set to report a disappointing financial performance in the near term.
According to its most recent update, the company is seeking to mitigate the effects of coronavirus through various measures. These include eliminating all discretionary spending. It has also reduced repair and maintenance spending to a minimum, and has postponed recruitment.
In the long run, Whitbread’s growth strategy could lead to an improved position relative to its sector peers. Its financial strength may enable it to win market share from smaller peers, and could lead to a stronger outlook for its bottom line.
The stock’s 50% decline since the start of the year suggests that investors have priced-in a major drop in its earnings in the short run. Since it has the potential to return to rising levels of profitability in the coming years, and may even improve on its competitive position as a result of the uncertain economic outlook, now could be the right time to buy a slice of the business.
Another FTSE 100 stock that has dropped by 50% since the start of 2020 is Glencore (LSE: GLEN). The company has experienced disruption in production in countries such as South Africa and Colombia, where lockdowns are restricting its operational progress.
Alongside some production disruption, Glencore faces the prospect of a period of weaker demand for many commodities. A global economic slowdown could also lead to weak investor sentiment towards the wider mining sector.
However, with the shares now trading at a significant discount to their recent price and the business having a strong balance sheet relative to some of its peers, it could experience a sound recovery in the long run.
Certainly, further falls could be ahead for Glencore’s share price. But its recent update suggested that its marketing business is performing in line with expectations, while the prospect of a global economic recovery could lead to improving investor sentiment towards the stock over the coming years. As such, the company’s share price decline could represent a buying opportunity for long-term investors.
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Peter Stephens owns shares of Whitbread. 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.