The FTSE 100’s market crash means that many large-cap shares now trade on low valuations. Although their prices could fall further in the near term if economic challenges continue to be high, over the long run they may offer recovery potential.
With that in mind, here are two FTSE 100 stocks that appear to offer wide margins of safety at the present time. Buying them now and holding them over the long run could lead to high returns that improve your prospects of retiring early.
The UK’s lockdown means that housebuilder Persimmon (LSE: PSN) has closed all of its sales offices. They look set to remain shut over the coming weeks. And this is likely to cause a significant decline in the company’s financial performance in the short run.
Investors appear to have factored-in a difficult period for the business. The company’s share price has declined by 28% since the start of the year. This suggests that it offers a wide margin of safety, and may have recovery potential in the long run.
Looking ahead, Persimmon could benefit from a supportive monetary policy. Low interest rates may make housing more affordable to a wider range of consumers, which could support rising demand for properties at a time when supply shortage is set to continue.
Clearly, there is uncertainty regarding when the UK will exit its lockdown. However, it has a solid balance sheet that includes a cash balance of £610m and the company has cancelled its latest return of capital. So it seems to be in a relatively strong position to overcome its present challenges. As such, buying it today and holding over the long run could produce high returns for investors.
Another FTSE 100 share that offers long-term total return potential is Morrisons (LSE: MRW). The retailer’s shares are down by around 7% since the turn of the year, and could produce a successful turnaround in the coming years.
Clearly, recent weeks have been a period of intense change for the supermarket sector. This trend could continue over the long term, with measures such as social distancing likely to exacerbate the shift from in-store purchases to online delivery.
Morrisons’ recent results showed that it is making progress in enhancing its delivery service. For example, it has extended its service so that it now covers around 90% of the UK population. It is also ramping-up click & collect services at many of its stores as consumers’ shopping habits continue to change.
The company is on track to meet its target of £1bn annual wholesale revenue. This could provide it with a robust growth opportunity over the long run that catalyses its sales and profitability. As such, now could be the right time to buy a slice of the business, despite it currently experiencing unprecedented operating conditions.
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Peter Stephens owns shares of Morrisons and Persimmon. 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.