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Why I’d buy a selection of cheap FTSE 100 stocks in this market crash

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Buying a selection of FTSE 100 shares in this market crash may not be an appealing prospect to many investors at the present time. The index could easily move lower in the short run if news regarding coronavirus is negative.

However, over the long run, the FTSE 100 is likely to recover from its present price level to post new record highs. Therefore, buying high-quality stocks at low prices could prove to be a highly profitable move in the coming years.

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Diversification

Diversifying across a wide range of FTSE 100 shares may prove to be more important then ever over the next few years. Some industries such as travel and leisure and retail may experience highly challenging trading conditions over a prolonged period. This may lead to financial difficulties for some incumbents that causes them to fail.

Therefore, investing in a variety of businesses that operate in a range of sectors could prove to be a shrewd move. It may reduce your overall risks, as well as boost your returns through having exposure to fast-growing industries. Such industries should be able to recover relatively quickly from current economic challenges.

Recovery potential

A stock market recovery may not seem especially likely at the present time. After all, the number of coronavirus cases sadly continues to rise. And this trend may continue for many weeks.

However, investors’ attention is likely to eventually focus on the possibility of a recovery. Even after its most severe bear markets in the past, the FTSE 100 has returned to growth. The impact of fiscal and monetary policy stimulus will gradually start to be felt. That means company earnings may rise and investors could start to feel more bullish about the prospects for the stock market.

So, a recovery from the current market crash seems to be likely over the coming years. The FTSE 100 has recovered from previous crashes. Remember 1987, the early 2000s and 2008/09? It is likely to return to a bull market that produces higher stock prices for high-quality businesses.

Low valuations

The valuations on offer across the FTSE 100 at the present time are exceptionally low. A number of large-cap stocks are trading on significantly lower valuations than their historic averages. Although their earnings may decline in the short run, in the long term, a wide range of companies appear to have the financial strength to return to impressive profit growth.

Buying a selection of such companies while they offer wide margins of safety could lead to high returns in the long run. The current market crash could worsen before it improves, but history suggests that the FTSE 100 is highly likely to deliver high returns in the coming years. As such, now could be the right time to capitalise on the low valuations on offer across the index.

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Peter Stephens 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.

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