The Motley Fool

Stock market rally: should you buy cheap FTSE 100 shares today or wait for a pullback?

The FTSE 100’s recent market rally has propelled the index from its March lows. However, many of its members continue to face highly uncertain operating conditions that could lead to a pullback for the FTSE 100 over the near term.

Despite this risk, the valuations on offer across the index suggest that now could be the right time to buy a range of high-quality stocks for the long term. Their wide margins of safety and recovery potential could mean there are high returns on offer in the coming years.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Short-term risks

The lockdown measures put in place in response to coronavirus were an unprecedented action across many of the world’s economies. Although there looks set to be a gradual reopening of sectors, such as retail and travel & leisure, in the coming months, there are still risks facing the world economy. For example, there may be a second wave of the virus in the latter part of the year. Geopolitical risks concerning the US and China could also be magnified by the pandemic.

Therefore, there’s a reasonable chance the FTSE 100’s recent market rally will come to an end in the short run. It may even be replaced by a market crash, resulting in paper losses for investors.

Cheap FTSE 100 stocks

However, the valuations of many FTSE 100 shares suggest that investors may be factoring the prospect of a market pullback in the near term. Many industries contain companies trading on valuations that are significantly below their historic averages.

Even companies relatively less impacted by coronavirus appear to offer wide margins of safety at the present time. Therefore, the risk/reward opportunities on offer across the FTSE 100 seem to be highly appealing.

Furthermore, investors with a long-term investment horizon are likely to have sufficient time available for their holdings to recover from potential short-term challenges.

The FTSE 100 has recorded an annualised total return of over 8% since its inception 36 years ago, despite experiencing numerous downturns in that time. Therefore, adopting a buy-and-hold strategy could yield high returns. Even if it causes paper losses in the short run.

An uncertain outlook

Of course, the FTSE 100’s future is always uncertain. There are a wide range of known unknowns. Thes can impact on share prices – even if investors aren’t all that concerned about them during periods of strong growth. For example, even if the outlook for the economy is positive and risks seem to be low, share prices can come under severe pressure from unforeseen and extreme events.

Therefore, investing is always a risky pursuit. However, by obtaining wide margins of safety from cheap FTSE 100 shares now, you could generate high returns from the index over the long run as it gradually recovers from the recent market crash.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

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.