Great investing opportunities like the one created by the recent stock market crash don’t come along every day. The intense stock selling of late February and early March has seen many robust, high-quality shares plummet along with some of the less solid ones. And this provides FTSE 100 investors with a chance to get in on some truly terrific blue-chips at the ground level.
Riding the FTSE 100 decline
I understand why share investing right now is a scary endeavour for some. Market confidence remains quite close to rock-bottom and another stock market crash could be upon us soon. It’s clear that the global economy is about to toil badly because of the Covid-19 breakout. News of a fresh boom in infection rates (and particularly in the US) is undermining hopes of a sharp economic recovery too. Hopes that powered the FTSE 100 from its decade-long lows in March.
It’s only natural that share investors are hung up today. However, the most successful share investors are ones that buy shares that look undervalued whatever the near-term problems facing the global economy. Over the long run these investors tend to enjoy the strongest returns as economic conditions gradually return to normal and share prices rise again.
Some of my Stocks and Shares ISA picks
Buying undervalued stocks has been an important part of my investing strategy long before the recent market crash. I bought Prudential in a Stocks and Shares ISA at the start of the year because its low earnings multiple (of below 10 times) failed to reflect its impressive profits growth in Asia, and its robust long-term outlook as population rates and wealth levels continue to boom in the region.
Housebuilders Barratt Developments and Taylor Wimpey offered irresistible value when I bought them several years ago too. On top of low price-to-earnings (P/E) multiples, these FTSE 100 shares provided dividend yields a good 50% above the historical Footsie forward average. Britain’s huge homes shortage means that these blue-chips should report BIG profits over the next decade at least.
And I bought DS Smith, which also promised big dividends and traded on low earnings multiples, back in 2018 because of its rising might in fast-growth areas like e-commerce. I’m pleased to see that my decision continues to look like a good idea.
Want to make a million?
Low P/E ratios and chunky dividend yields aren’t the be-all-and-end-all. Some FTSE 100 shares are dirt-cheap because of their poor profits outlooks and/or their weak balance sheets. They should be avoided at all costs.
But on the other side, there is a goldmine of undervalued blue-chips following the stock market crash waiting to be tapped. And with some sensible research it’s possible to make a million from these shares. Just ask the growing number of Stocks and Shares ISA millionaires in the UK who have supercharged their returns by buying low and selling high.
Royston Wild owns shares of Barratt Developments, DS Smith, Prudential, and Taylor Wimpey. The Motley Fool UK has recommended DS Smith and Prudential. 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.