Buying FTSE 100 stocks with £5k in an ISA today may not seem to be a sound strategy for those investors seeking to retire early. The world economy faces one of its most challenging periods in living memory. And the coronavirus has caused many industries to experience significantly lower demand.
However, buying FTSE 100 stocks after their recent price falls could be a means of accessing low valuations. In many cases they offer recovery potential, and may help to bring your retirement date a step closer.
Here are two large-cap shares that appear to offer wide margins of safety and turnaround potential over the coming years.
The recent quarterly update from FTSE 100 mining company Glencore (LSE: GLEN) highlighted that a substantial part of its operations have been unaffected by coronavirus. However, some of its operations are likely to be affected. And this could lead to a fall in its production guidance over the coming months.
This may be offset to some degree by falls in Glencore’s costs. It has benefitted from lower energy costs in recent months, while favourable currency movements may limit its profitability decline. It has also recorded strong demand within its Marketing division. This may help to mitigate a potential slowdown in demand for a wide range of commodities across the global economy should a recession happen.
The Glencore share price has fallen by 42% since the start of the year. Yes, investor sentiment towards the wider FTSE 100 mining sector may take time to improve from its current low levels. But the company’s performance could be relatively strong. As such, now could be an opportune moment to buy a slice of the business for the long run.
FTSE 100 bank Lloyds
Lloyds (LSE: LLOY) looks set to face difficult operating conditions in the short run. Its recent quarterly update included an impairment charge of £1.43bn due to the revised economic outlook. This reduced the bank’s quarterly profit to just £74m. Lower levels of profit may become the norm for the bank in the current year, as reduced economic activity across the UK could lead to lower demand for new lending.
Despite this, Lloyds’ update also highlighted its strong balance sheet and its capacity to reduce costs. For example, its operating costs declined by 4% during the quarter, and further reductions could help to offset a decline in income to some extent.
The Lloyds share price has fallen by 55% since the start of the year. This suggests that investors have factored-in a large proportion of the risks faced by the FTSE 100 company, and could indicate that it now offers a wide margin of safety. Therefore, it could offer recovery potential after its share price fall as the economic outlook improves over the coming years.
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Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.