The stock market crash means that many FTSE 100 shares now trade on relatively attractive valuations. Certainly, some stocks have made encouraging gains of late as investor sentiment has improved. But in many cases there are large-cap shares trading on valuations that suggest they offer margins of safety.
Here are two such examples of companies that appear to be undervalued at the present time. They may experience uncertain periods in the short run, but seem to have the potential to produce strong turnarounds in the long run. As such, buying them today could prove to be a shrewd move.
FTSE 100 bank HSBC
The recent first quarter update released by FTSE 100 bank HSBC (LSE: HSBA) highlighted the financial impact that coronavirus is having on its performance. The bank experienced an increase in expected credit losses during the period, as well as impairments. This contributed to a 48% fall in its pre-tax profit for the quarter, with lockdown measures in many of its key markets likely to produce further declines in its financial prospects in the coming months.
A slowdown in global economic activity could significantly impact on HSBC’s long-term prospects. However, investor sentiment towards the bank has substantially weakened over recent months. For example, its share price is currently down by 33% since the start of the year. This suggests that investors are factoring in a period of intense financial challenges for the bank, which could mean that it now offers an attractive risk/reward opportunity for new investors.
With the bank being exposed to markets across the world that could offer relatively high growth rates in the coming years, it could experience a solid recovery. Therefore, now could be an opportune moment to buy a slice of it while it trades at a relatively low price following the FTSE 100’s recent market crash.
Legal & General
The recent investor update from FTSE 100 financial services business Legal & General (LSE: LGEN) highlighted its potential to deliver relatively strong growth in the long run. The company’s six structural growth drivers, which include areas such as an ageing population and climate change, continue to provide it with growth opportunities according to its update. As such, it intends to take advantage of low interest rates to take on debt to invest in its various divisions.
While an uncertain economic outlook could cause investor sentiment towards Legal & General’s shares to decline, its current share price suggests that it offers a wide margin of safety. It is currently down 25% since the start of the year, which indicates that investors have priced in at least some of the risks faced across its business.
Therefore, with the company appearing to have a solid balance sheet and a sound growth strategy, now could be the right time to buy a slice of it following the FTSE 100’s market crash.
Don’t miss our special stock presentation.
It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.
They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.
That’s why they’re referring to it as the FTSE’s ‘double agent’.
Because they believe it’s working both with the market… And against it.
To find out why we think you should add it to your portfolio today…
Peter Stephens owns shares of HSBC Holdings and Legal & General Group. The Motley Fool UK has recommended HSBC Holdings. 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.