Buying UK shares that have fallen in price due to the stock market crash may not appear to be a logical move to some investors. Such companies may face significant short-term risks that could send their share prices even lower.
However, in some cases they may offer recovery potential over the long run. With that in mind, here are two British stocks that have fallen heavily in 2020 but could produce turnarounds as the economic outlook improves.
A recovery opportunity among UK shares
Taylor Wimpey’s (LSE: TW) stock price has underperformed many other UK shares since the start of the year. It’s currently down 46%, with its recent half-year results showing a 56% decline in sales versus the same period of the previous year.
Despite an uncertain near-term outlook, the company has a solid financial position that could allow it to overcome short-term threats. For example, it has net cash of almost £500m and a long order book. Therefore, its financial prospects may be more positive than investors are currently anticipating.
Certainly, further lockdown measures and weak consumer confidence would harm the outlook for Taylor Wimpey, as it would for many other UK shares. However, low interest rates and government support such as the stamp duty holiday may mean that operating conditions for the sector become more encouraging.
Therefore, now could be the right time to buy a slice of the business, especially while it appears to offer a wide margin of safety.
A falling stock with turnaround potential
ITV (LSE: ITV) has also delivered a disappointing performance this year relative to other UK shares. The media company’s stock price is currently down 55% year-to-date, with its recent half-year results highlighting the difficulties it has faced.
For example, the company’s sales declined by 17% as demand for advertising has fallen. This situation could persist in the short run, but is likely to improve as the prospects for the economy strengthen. Moreover, ITV is reducing costs and investing in digital opportunities that could position it for growth in the coming years.
As such, now could be the right time to buy it. Although other UK shares may offer greater stability in the short run, the company’s capital return potential appears to be high.
Its cyclicality means it may prove to be a major beneficiary of an improving business and consumer outlook for the UK as risks such as Brexit and coronavirus gradually recede.
Investing money in an ISA today
Clearly, investing £5k, or any other amount, in UK shares such as ITV and Taylor Wimpey may not produce high returns for ISA investors in the short run. However, with the stock market having a solid track record of recovery, buying cheap stocks could be a means of benefitting from improving prospects over the coming years.
Peter Stephens owns shares of Taylor Wimpey. The Motley Fool UK has recommended ITV. 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.