With the FTSE 100 having crashed by around 25% since the start of 2020, it is not too difficult to find bargain shares at the present time. The index’s price level could move lower in the short run. But over the long run, many of its members appear to offer recovery potential.
As such, now could prove to be a buying opportunity for long-term investors. With that in mind, here are two FTSE 100 shares that appear to offer wide margins of safety. They could be worth buying today and holding over the coming years.
Banks such as RBS (LSE: RBS) will not be making any dividend payments until the end of 2020 in response to the economic impact of coronavirus. This is clearly disappointing for investors in banking stocks. Over the past few years the sector had appeared to be heading towards a future that included rising dividend payouts.
However, a reduction in economic activity and lower interest rates may make the task of generating improving returns more difficult for RBS and its peers. Therefore, paying no dividends for the time being will strengthen the bank’s financial position ahead of what looks set to be a difficult period for the sector.
Having declined by over 50% since the start of the year, RBS’s share price now appears to offer a wide margin of safety. It is currently trading close to an all-time low. Further declines could be ahead as a result of the economic impact of coronavirus. But investors appear to have factored-in an exceptionally challenging period for the bank. As such, for long-term investors, it could represent a value investing opportunity.
Another FTSE 100 stock that has experienced larger falls than the wider index since the start of the year is Shell (LSE: RDSB). The oil and gas company’s share price has declined by 36%. That came as a weak oil price looked set to significantly weaken its financial performance in the current year.
Shell has responded to a challenging economic outlook by reducing its costs. For example, it plans to cut its annual operating expenses by $3bn-$4bn over the next year. It will also cut its capital expenditure from a planned $25bn per annum to around $20bn. These measures will help to improve the company’s financial position. And they could mitigate the impact of a prolonged period of lower oil prices should the world economy experience a recession.
Clearly, weak oil and gas prices are set to create extremely difficult operating conditions for Shell. However, its strong balance sheet and diverse range of assets may allow it to overcome the present challenges faced by the sector. It may even be able to strengthen its market position, as smaller and less financially-sound peers struggle to an even greater extent.
Therefore, now could be the right time to buy a slice of Shell. It may experience further declines in its share price, but a long-term recovery appears likely.
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Peter Stephens owns shares of Royal Bank of Scotland Group and Royal Dutch Shell B. 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.