£5k to invest today? I’d buy these 2 cheap FTSE 100 stocks in an ISA to retire early

I think these two FTSE 100 (INDEXFTSE:UKX) shares could offer recovery potential after their disappointing stock price performances over recent months.

| More on:

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.

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.

Glencore

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.

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 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.

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 »