The performances of many FTSE 100 shares have been underwhelming this year. A wide range of UK shares continue to trade at low prices after the stock market crash as a result of an uncertain economic outlook.
However, the world economy has a long track record of recovering from its various challenges. Therefore, today’s cheap stocks could prove to be ISA buying opportunities over the long run.
With that in mind, here are two British shares that have fallen heavily this year. They could offer improving total returns over a longer period.
A cheap FTSE 100 share with recovery potential?
FTSE 100 oil & gas stock BP (LSE: BP) has seen a 50% decline in its share price this year. Why? Its prospects have been negatively impacted by a slowing global economy that caused oil demand to fall.
In response, the company set out a major strategy shift that will see it prioritise investment in renewable forms of energy. It will also focus on convenience and mobility to improve its competitive advantage in new and existing markets. Alongside this, it will seek to focus its hydrocarbon investment on higher-grade opportunities. These could make it more competitive relative to sector peers.
These changes have the potential to more closely align BP with the direction in which the world economy is headed. It could lead to a more sustainable outlook for the company that allows it to command a higher valuation in the long run.
Therefore, while the stock may continue to underperform the FTSE 100 in the short term, it appears to have recovery potential on a long-term horizon.
Potential to outperform other UK shares?
Smith & Nephew (LSE: SN) is another FTSE 100 share that has struggled to deliver a rebound after the 2020 stock market crash. Its shares currently trade 16% lower than at the start of the year. It seems restrictions caused by coronavirus led to a fall in sales of 3.7% in its most recent quarter.
However, the company has sought to improve its market position over recent months. For example, it has launched multiple new and innovative products and announced an acquisition that could improve its competitive advantage. It also seems to be in a strong position to return to growth as the impact of the pandemic likely reduces during the course of 2021. This may mean that its shares offer an improving outlook.
Therefore, I think Smith & Nephew could offer long-term growth potential relative to other FTSE 100 shares. Its forward price-to-earnings (P/E) ratio of 19 may be a price worth paying for a business that is forecast to report a near-50% rise in net profit next year. This may increase its appeal among investors and allow it to outperform other UK shares as the world’s economic recovery takes hold.
Peter Stephens owns shares of BP. 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.