In such unprecedented and uncertain economic conditions, the stock market may be the last place you think of spending your hard-earned cash. But hear me out, I think buying cheap FTSE 100 stocks today, and holding them for the long term, could enable you to build up vast amounts of wealth over time.
While I’m acutely aware that share prices may still have further to fall before the market reaches rock bottom, I’m confident that buying cheap FTSE 100 stocks, which offer a wide margin of safety, could set you up financially as the global economy begins to recover.
After lockdown restrictions are eased, some economic output could relatively soon return to pre-virus levels. If so, I expect some companies’ share prices to rebound significantly over the coming months and years as the recovery gets under way.
Accordingly, now could be an ideal time for long-term investors buy some FTSE 100 stocks at bargain prices.
FTSE 100 bargains
My focus in this market crash is on companies that exhibit several key characteristics that give an indication of their financial stability and future prospects. This includes evidence of stable earnings, healthy cash reserves and strong market positions.
Speaking of which, mining company Glencore announced last month that most of its operations have seen no material impact as a result of Covid-19. With refinanced credit facilities and strong cash flows, I expect the company to weather the storm comfortably. The shares are down by 36% since mid-February and have a P/E ratio of 11, which indicates good value in my eyes.
I think market-leading packaging company DS Smith looks like an oversold stock too. In an update on Monday, the company stated that “trading continues to progress well despite macro-economic uncertainty”. In spite of this, the shares are down by 21% since the beginning of the year and trade at a P/E ratio of around 9.
Finally, telecoms giant BT is a stock that looks dirt-cheap to me. The shares have plummeted by 45% in 2020 and are trading well below their historical average, indicating a wide safety margin. With many relying on their broadband throughout the crisis, it’s hard to envisage a fall in demand for core services. As such, BT’s share price may be due a turnaround, which could deliver significant returns.
It doesn’t end here though. There are a number of other FTSE 100 stocks that also look like bargains to me at the moment. I’m keeping my eyes on British American Tobacco, Vodafone, Taylor Wimpey and Aviva, to name a few!
Worthy long-term investments
In my view, investors should be braced for volatility over the short term. However, in the long run, I think buying cheap shares in quality FTSE 100 companies could improve your financial prospects.
In every stock market crash, share prices have eventually bounced back. Though it may have taken months, and sometimes years, for them to recover.
That’s why I think it’s vital for those investing in the stock market crash to have a long-term horizon. That way, you can ride through the highs and lows, avoiding the danger of trying to time the market.
With that in mind, if you’re looking to invest £5,000, I’d recommend buying cheap FTSE 100 stocks today to position yourself ahead of the stock market rebound and build wealth over the long term.
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Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith. 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.