Finding the FTSE 100’s best bargains after the index’s recent crash may be a relatively challenging task. After all, it’s unclear which sectors can improve their financial performances over the coming years. It’s even more difficult to accurately value UK shares to access wide margins of safety.
However, by focusing your capital on financially-sound businesses in sectors that offer long-term growth potential, you can generate high returns over the coming years. As such, now could be the right time to invest £2k, or any other amount, in blue-chip stocks after the market crash.
FTSE 100 growth potential
The FTSE 100’s growth outlook has arguably not been more uncertain since the last global economic downturn during the financial crisis. It seems likely a period of weak economic performance will now take place. Since it’s not possible to know how long it’ll last, identifying companies that can survive an extended period of time with lower sales could be a sound move.
For example, analysing company balance sheets to find businesses with low debt and access to liquidity should it be needed could be a worthwhile move. They may be better able to cope with lower sales. Companies that have a lower proportion of fixed costs could also be more adaptable to a period of slower growth. Such businesses may be less risky than their peers, and could warrant higher share prices.
Of course, some FTSE 100 growth trends could remain in place despite coronavirus. For example, demand for healthcare and the switch to conducting more business online are established trends that look set to persist, and even grow more quickly, in future.
Therefore, buying stocks that focus on such trends could be a sound move. Companies operating in sectors such as online retailing and healthcare who are implementing new technology could become increasingly valuable. Identifying them now when they may trade on low valuations could allow you to build a portfolio of bargain shares that offers an attractive risk/reward opportunity.
As mentioned, valuing FTSE 100 stocks is more difficult at the present time due to the risks facing the world economy. However, identifying UK shares that trade at a discount to their peers despite stronger financial positions could be a sound move.
They may be able to command a higher valuation in the long run as they’re better suited to an uncertain economic outlook that may quickly change. They may also be better able to gain market share at the expense of weaker sector peers.
As ever, buying high-quality businesses at low prices could be a sound move. Many UK shares currently representing bargain status after the stock market crash. So now could be the right time to build a portfolio of FTSE 100 shares.
Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.