Finding the best FTSE 100 bargain shares could be a challenging, but rewarding, task for long-term investors. The index’s outlook may now be relatively volatile and uncertain after its recent market crash. However, this may present cheap UK shares that have the potential to deliver high returns.
As such, now could be the right time to invest £5k, or any other amount, in companies with low valuations, wide economic moats and long-term growth potential. They could boost your portfolio’s performance and improve your financial position.
FTSE 100 bargains
Assessing the value of FTSE 100 shares has become more difficult over recent months. Previously, forecasts may have been used and past profit figures considered when seeking to ascertain whether a stock offered good value for money. However, now that the economic outlook is much more difficult to predict, and some companies have experienced falling profitability, the task is more challenging.
Despite this, it is possible to use factors such as past financial performance, asset values and the valuations of sector peers to gauge whether a business is fairly priced. Investors may then wish to obtain a wide margin of safety to protect themselves against a further stock market crash that could yet occur in the short run.
Economic moats
FTSE 100 companies with an economic moat, or competitive advantage, may be in a stronger position to overcome the difficulties faced across many sectors at the present time. For example, they may have a unique product that enjoys relatively high demand, or a loyal customer base may mean that their sales performance is more consistent than that of their peers.
Companies with economic moats may also be in a stronger position to benefit from a likely economic recovery. Although the prospects for UK shares may be downbeat in the short run due to risks such as a second wave of coronavirus cases, history suggests that they are likely to recover. By purchasing the best quality companies that have competitive advantages, you could reduce your risks and potentially improve your returns.
Growth trends
Identifying growth trends across the FTSE 100’s various sectors may prove to be a challenging task. The outlook for a number of industries has changed materially over recent months.
However, a number of sectors are likely to experience strong long-term growth in demand due to ongoing global trends. For example, an ageing world population may mean that demand for healthcare products and services continues to rise over the coming years. Similarly, emerging markets could produce strong growth in demand for consumer goods over the coming years.
By investing in companies that are likely to experience growing demand for their goods and services, it is possible to unearth the FTSE 100’s best bargains to boost your financial outlook.
