A wide range of FTSE 100 shares have experienced significant declines since the start of 2020. In the near term, further falls cannot be ruled out. The path that coronavirus takes is currently a known unknown.
However, in the long run, the FTSE 100 could deliver a strong recovery. The index has been able to achieve this goal following previous bear markets, and the valuations of many of its members suggest that they currently offer wide margins of safety.
As such, now could be the right time to buy these two FTSE 100 shares after their prices have crashed by 40%+ in 2020.
Coronavirus is likely to have a significant impact on Next’s (LSE: NXT) profitability in the current financial year. The retailer stopped taking online orders on 26 March in response to safety concerns raised by its staff members. This followed its previous decision to close its stores.
Clearly, a period without sales is going to hit the company’s financial performance exceptionally hard. However, Next has a solid balance sheet and a high degree of customer loyalty. Therefore, it looks likely to survive the near-term challenges presented by coronavirus. It may also be able to quickly ramp-up its sales once its stores and online operations reopen.
In the meantime, investor sentiment towards the company could continue to be weak. Its share price has fallen by 46% since the start of the year. However, its repositioning towards online sales and its history of overcoming difficult retail trading conditions suggests that it is in a good position to deliver a sound stock price recovery over the long run. As such, buying a slice of it today could prove to be a profitable move.
Another FTSE 100 company that has recorded a major fall in its share price since the start of the year is Compass Group (LSE: CPG). The support services business recently reported that containment measures implemented across many of its key markets have caused the vast majority of its Education and Sports & Leisure operations to close.
The end result of this is likely to be a substantial fall in the company’s profitability in the current year. The scale of the decline will clearly depend on how quickly containment measures are eased. In the meantime, Compass Group is actively managing its capital expenditure. Its solid balance sheet is likely to mean that it maintains its strong market position over the long run.
Therefore, now could be the right time to buy shares in the company. Certainly, it is experiencing a very challenging period that could lead to further declines in its stock price in the short run. But long-term investors can currently purchase what is a high-quality business that has recovery potential for a relatively attractive price.
Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. 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.