Buying cheap FTSE 100 shares after the UK stock market crash could be a means of generating high returns in the coming years.
The index’s track record of recovery shows that it has always been able to overcome periods of poor performance to post strong gains.
As such, now could be the right time to buy cheap shares, such as the two businesses discussed below. They may catalyse your portfolio’s performance and increase your chances of becoming an ISA millionaire.
The difficult operating conditions facing the oil & gas sector have taken their toll on FTSE 100 stock Shell’s (LSE: RDSB) dividend. Its recent first-quarter results included a reduction in shareholder payouts of around two-thirds.
However, the company now yields around 4% due in part to its weak share price performance over the last few months. That is higher than many of its index peers, and suggests that it could continue to offer income investing appeal.
Certainly, the outlook for the company is relatively challenging. Lower demand for oil and gas could continue over the coming months as a weak economic outlook is likely to remain in place. However, with a solid balance sheet and the capacity to reduce its operating and capital expenditure, it could offer long-term recovery potential.
With investor sentiment towards the FTSE 100 energy sector being highly downbeat at the present time, now could be an opportune moment to buy high-quality businesses such as Shell while they are unpopular. Although doing so may not lead to high returns in the short run, it could produce high returns in the coming years that increase the value of your ISA.
FTSE 100 bank Lloyds
Another FTSE 100 share that could produce long-term capital returns is Lloyds (LSE: LLOY). The banking sector is also very unpopular at the present time. Factors such as low interest rates and cancelled dividends for the 2020 financial year mean that investors have pivoted to other sectors over the last few months.
As such, the Lloyds share price now trades 47% lower than it did at the start of the year. This could mean that it offers a margin of safety, since investors may have priced-in many of the risks currently facing the UK economy.
The bank’s performance prior to the pandemic was relatively impressive. It has integrated acquisitions, invested in online services to differentiate itself in a competitive environment, and has successfully launched a financial planning service that could provide cross-selling opportunities over the coming years.
Therefore, as the outlook for the UK economy improves over the long run, Lloyds could be a major beneficiary. Now could be the right time to buy a slice of it while it appears to offer a wide margin of safety relative to many FTSE 100 companies.
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Peter Stephens owns shares of Lloyds Banking Group and Royal Dutch Shell B. 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.