The FTSE 100’s stock market crash has caused a number of the index’s members to trade on low valuations. Due to the uncertainty surrounding coronavirus, those companies could record further share price declines in the near term. However, in the long run, they appear to offer recovery potential in many cases.
With that in mind, here are two FTSE 100 stocks that have experienced significant declines in their prices. They now seem to offer wide margins of safety, and could be worth buying now to hold for the long run.
The share price of defence business BAE (LSE: BA) has fallen by 7% since the start of the year. While that is a disappointing performance for its investors, it is substantially better than the FTSE 100’s decline of 23% in the same time period.
A key reason for BAE’s relative outperformance is that coronavirus has had no material impact on its business operations thus far. It has continued to receive orders for its products. And this trend may continue as demand across the defence industry is likely to remain high.
Yes, there is the potential for a slowdown in defence spending in the long run, should coronavirus cause government spending to be reduced. But BAE has a solid financial position. For example, in its recent update the company highlighted that it has access to a £2bn credit facility and a large cash pile.
Trading on a price-to-earnings (P/E) ratio of 11.5, it seems to offer a wide margin of safety given its recent financial performance. Its dividend deferral means that its income appeal has declined. But this is likely to be a temporary measure, with the company’s income and capital return prospects set to be relatively attractive over the long run.
Legal & General
Unlike BAE, the Legal & General (LSE: LGEN) share price has declined by more than the FTSE 100 since the start of 2020. It has fallen by 30%, despite the company recently announcing that it plans to maintain its dividend.
As such, Legal & General has a dividend yield of around 8.2% at the present time. This mean that it is highly appealing to income investors at a time when many of its FTSE 100 peers – notably banking stocks – are not paying dividends. Legal & General’s financial position is robust, according to its most recent update. That means it may be in a position to maintain dividend payments through most of the present economic challenges.
The company’s P/E ratio of 7 suggests that it offers a wide margin of safety. Its shares could continue to decline in the short run. But over the long run, the business appears likely to deliver improving financial performance. As such, now could be the right time to buy a slice of it while it offers a high yield and a low valuation.
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Peter Stephens owns shares of BAE Systems and Legal & General Group. 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.