Over the past three months, broader indexes such as the FTSE 100 have been steadily climbing. And many market participants have been celebrating. Rising stock markets typically mean increasing portfolio gains for those invested in stocks.
Yet after the volatility and the decline in February and March, a large number of investors may still have a cash position. They may possibly wonder whether they are late to the party as they may regard shares as expensive now. However, I believe now is a good time to buy FTSE 100 shares. Here’s why.
Investors can still find cheap shares
Since the lows seen in March, the UK’s main equity index is up over 20%. However, it is still down around 20% from its highs in February.
Similarly many of the names in the FTSE 100 index are still lower compared to their 2020 highs. Here are year-to-date (YTD) price movements for several companies whose stocks I believe could be on your radar in the second half of the year.
- Oil major BP: YTD down 34.4%;
- Spirits giant Diageo: YTD down 15.7%;
- UK banking giant Lloyds: YTD down 50.8%;
- Healthcare group Smith & Nephew: YTD down 13.7%;
- Advertising leader WPP: YTD down 41.8%.
No one can predict how markets will fare in July. However, we may see further gains in the markets in the coming months. Thus, if you liked a FTSE 100 company well enough to buy its stock in January, then I believe you should like its share price even more now.
One of my favourite quotes from legendary investor Warren Buffett is: “Buy into a company because you want to own it, not because you want the stock to go up.”
We should all invest in a company for the right fundamental reasons. Then buying the stock at a low share price following a market crash can only be a blessing as it would help generate wealth over the long term.
FTSE 100 index climbs the wall of worry
The past several days have seen volatility kick back in. Recent market action seems to be tied to news headlines about restarting economic activity across the world and the number of new Covid-19 cases on a given day. Unfortunately there has been a considerable uptick in the number of cases in many countries. The number of hospitalisations is increasing, especially in the US, Asia, and Latin America.
Many investors are wondering if it is time to take off their rose-tinted glasses. Could another market crash happen soon? Yes it could.
Yet uncertainty may also create opportunity. Market history sides with the long-term optimist who regularly invests, especially in cheap shares.
For example, most of us remember the uncertainty that followed the Brexit referendum of 2016. In the four years since then, many investors thought equity markets were on a rollercoaster ride, especially last year. Yet both the FTSE 100 and the FTSE 250 did exceptionally well in 2019. Sooner or later, question marks surrounding UK equities are bound to be dealt with.
The Foolish takeaway
Many solid companies have become more affordable than they were earlier this year. Yet they could regain their mojo in the coming months. Therefore, the average investor should stop worrying about the current volatility and concentrate on long-term investment goals, such as retiring wealthy.
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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and 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.