The stock market crash has caused many FTSE 100 shares to trade at attractive levels on a long-term view. Clearly, a recovery may (or may not) take place in the short run. But the FTSE 100’s track record suggests that it is likely to occur over the long run.
As such, now could be the right time to buy a range of large-cap shares while they trade at low prices. Here are two prime examples of what appear to be high-quality businesses. They may offer long-term recovery potential following their recent price declines.
FTSE 100 housebuilder Barratt
The 37% fall in the share price of FTSE 100 housebuilder Barratt (LSE: BDEV) could present a buying opportunity. The company recently announced that it has a strong financial position. In fact, it has £430m in cash, and access to various potential funding arrangements. It has also reduced unnecessary expenditure, as well as cancelling its dividend. That should further strengthen its financial position during a period of reduced activity for the sector.
Looking ahead, the housebuilding sector is expected to gradually resume operations. Although sales of new homes may be lower in the coming months due to an uncertain economic outlook and fears about job security, factors such as low interest rates and government schemes may help to support demand for new homes over the medium term. A limited supply of new homes may also support house prices to some extent.
Therefore, with a challenging period seemingly priced-in to its valuation, Barratt could offer long-term recovery potential. FTSE 100 housebuilders with solid balance sheets proved to be highly profitable investments following the last UK recession. And they could likewise deliver impressive relative total returns in the coming years as the economy gradually recovers.
The recent quarterly update from BP (LSE: BP) highlighted the financial strain the wider oil & gas industry is facing at the present time. The FTSE 100 company’s profit in the first quarter declined by two-thirds year-on-year, and could experience similar falls in upcoming quarters as the oil price continues to trade at a relatively low level.
Despite this, BP seems to be in a strong financial position to overcome a challenging period for the wider industry. Its update stated that it has $32bn of liquidity available. It also has the capacity to cut costs and reduce its dividends, should it be necessary. Therefore, while many of its peers may experience severe financial challenges, BP may be well placed to survive a challenging 2020.
The company’s share price has fallen by 40% since the start of the year. Although further declines in its valuation could be ahead should the oil price fail to rise, over the long run, the stock could prove to be a worthwhile recovery opportunity for less risk-averse investors. As such, now could be the right time to buy and hold the FTSE 100 stock for the long run.
Peter Stephens owns shares of Barratt Developments and BP. 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.