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Stock market crash: FTSE 100 has fallen 23% in 2020. I’d invest £5,000 in cheap UK shares like these now

At its highest, the FTSE 100 index clocked 7,675 in January this year. But the stock market rally was short-lived. As we all know, by March, the index was at multi-decade lows as the stock market crash struck. Thankfully, that appears to have been a short-lived phase too. But here’s the rub.

More than three months after the FTSE 100 index touched its sub-5,000 lowest, it’s still making its climb back up. And this is a slow process. The index is up 18% from its lowest point, but is still 23% lower than the highest levels touched. 

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This is both a blessing and a curse, depending on how we look at it. It does feel a lot like a curse when the value of our investments tanks and takes a while to start rising again. But, it’s a blessing for starting investing in the stock markets. If I were to invest £5,000 in FTSE 100 stocks today, my chances of catching high quality stocks at low prices are much higher after the stock market crash. 

Economy on the mend

I wouldn’t bet on this phase lasting for much longer either. Incoming data on the economy is slowly but surely turning encouraging. Consider these three data points. The Purchasing Managers’ Index (PMI) for manufacturing, a leading indicator of the sector’s health, rose in July to 53.3, where any value above 50 denotes expansion. Nationwide’s House Price Index (HPI) had also shown an increase in July, suggesting that property demand is coming back. According to the Office of National Statistics (ONS), retail sales also bounced back in June, which is encouraging after the stock market crash and pandemic. 

Stock market crash pick

I’m not saying that the economy’s firmly on it way out of the woods. Far from it. But, if the initial signs are encouraging, it could bode well for FTSE 100 firms, especially in sectors that are now recovering, like real estate, construction, and retail. I’d buy cheap UK shares from among these sectors. Take the example of the retailer NEXT (LSE: NXT), whose share price is still way below highs seen earlier in 2020. 

Its financials have quite expectedly taken a huge hit. It reported a 28% fall in sales in its latest trading update. But it has a somewhat positive outlook. It says that “we are now more optimistic about the outlook for the full year than we were at the height of the pandemic”. This is both because it says it has understood consumer demand better and also its online capabilities. 

Cheap UK share to buy

With a price to earnings (P/E) ratio of 11.6 times, it’s not exactly expensive either. It might have a few quarters of pain ahead as consumer spending makes its sustainable return to normalcy, but I reckon it will start performing over time. It’s a casualty of the stock market crash, but I think long-term investors can benefit from investing in cheap UK shares like this one and reaping rewards overtime.

A Top Share with Enormous Growth Potential

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While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of Next. 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.

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