The FTSE 100 market crash of 2020 caught many investors by surprise. As such, investor sentiment has taken such a big hit that many large-cap shares now trade at significant discounts to their historic average valuations.
With this being the case, here are two FTSE 100 blue-chip stocks that look like bargains after recent declines. While they might decline further in the near term, they could deliver tremendous returns in the long run.
FTSE 100 bargain
Investor sentiment towards FTSE 100 pest control giant Rentokil Initial (LSE: RTO) has weakened significantly over the past few weeks. The company’s share price has fallen by around 24% since the beginning of March.
The company has had to close operations in markets badly affected by the coronavirus outbreak. In Italy, for example, business closures and a national lockdown had reduced service levels by around 40% by mid-March.
This will limit Rentokil’s earnings potential in the near term. However, looking ahead, the FTSE 100 business is in a relatively stable position to overcome the current economic uncertainty.
To conserve cash, management has suspended the dividend for the time being. The group has also cut costs across the organisation. These cost reduction efforts alone will save the company £100m in 2020. With cash funds of £650m also available, the firm appears to have plenty of cash to see it through this turbulent time.
After recent declines, the stock is back to where it was the beginning of July 2019. So it appears to offer a wide margin of safety. Although profits are almost certainly likely to fall this year, I think Rentokil could deliver an attractive return for long-term investors from current levels.
Marketing agency WPP (LSE: WPP) has experienced an exceptionally difficult period over the past few weeks.
The advertising industry has ground to halt since the beginning of March. Clients have pulled advertising activity to preserve cash. As the largest ad agency in the world, WPP is bearing the brunt of this pain.
It doesn’t look as if this trend is going to come to an end anytime soon. However, the FTSE 100 company’s size is its most significant advantage. Over the past two years, the group has raised approximately £3.2bn from its disposals programme.
With this capital, WPP has £3bn of unconstrained funds to support the business through this uncertain time.
WPP’s outlook is unclear right now. Still, the business has plenty of funds to help it survive this unprecedented challenge. As such, with the FTSE 100 stock currently trading at a 10-year low, the shares appear to offer excellent value for money, considering the company’s market position.
While WPP may encounter further challenges in the near term, there could be a rush of clients looking to spend with the business when the economy returns to normal. This suggests shares in the group could be another attractive acquisition for long-term investors at current levels.
Rupert Hargreaves has no position in any of the shares mentioned. 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.