Stock market crash: 3 steps I’d take to capitalise on a FTSE 100 rebound

Here’s how I’d seek to benefit from a FTSE 100 (INDEXFTSE:UKX) recovery over the long term after the recent market crash.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 100’s long-term recovery prospects could be stronger than many investors realise. Certainly, more challenging trading conditions could be ahead that cause a period of uncertainty or even a market crash. But the index’s past performance shows that it has always been able to recover from its very worst periods to post new record highs.

Therefore, buying financially sound growth businesses at low prices could be a means of capitalising on the market crash to position your portfolio for a long-term recovery.

Financial strength

The financial strength of businesses has arguably been overlooked by some investors over recent years. A period of encouraging growth for the world economy has papered over risks such as high debt levels on company balance sheets. However, with GDP growth expected to decline rapidly over the short term, those risks could come to the fore and leave many companies in weak financial positions.

As such, it may be of high importance for investors to focus their capital on businesses with low debt levels and access to cash to overcome the difficult operating conditions faced by many sectors. They may have a much higher chance of surviving what looks set to be among the worst recessions faced by the world economy since the 1930s. By surviving the short run, you can potentially benefit from a FTSE 100 recovery over the long term.

FTSE 100 growth potential

Identifying businesses with growth potential at the present time is a relatively challenging task. Some companies, though, have reported that coronavirus has not caused a major decline in their financial performance. As such, they may be able to strengthen their market positions in the coming months to generate higher returns in the long run.

Other businesses may be able to capitalise on changing consumer behaviour. For example, online retailers may see a quickening in the pace of consumers shifting their spending away from physical stores and towards the internet. Likewise, companies that can more easily adapt to an evolving economy that is becoming increasingly flexible could be in a stronger position to generate higher levels of profitability in the coming years.

Low valuations

As well as buying financially-sound businesses with growth potential, purchasing cheap stocks could be a sound move. They may offer the greatest recovery potential, since their valuations may already include a margin of safety as investors prepare for a prolonged period of weak economic growth.

With the FTSE 100 trading at a relatively low level, and many of its members having valuations that are below their historic averages, now could be the right time to buy a number of stocks for the long run. The FTSE 100’s crash may or may not be over. But its long-term recovery prospects seem to be strong judging by its past performance.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »