Despite the recent stock market rally, there are a number of cheap FTSE 100 stocks available to buy. Certainly, some of them are businesses that merit low prices due to risks such as weak financial positions or an inability to adapt to change. However, others seem to be undervalued by the stock market given their long-term prospects.
As such, buying them could prove to be a sound long-term move. History suggests that they could deliver improving share price performances – especially as the world economy recovers from its current crisis.
Buying cheap FTSE 100 stocks for the long run
A strategy that aims to buy and hold cheap FTSE 100 stocks has been very successful in the past. A key reason for this is that it allows an investor to capitalise on the ups and downs of the stock market. In other words, they buy shares when they are priced at low levels, and look to sell them when they trade at higher levels.
Certainly, it may take many years for the stock market to fully recover from its challenges of the last year. However, the past performance of the large-cap index shows that it has ultimately bounced back from even its very worst declines. For example, it fell by around 50% in the global financial crisis, only to double in the following years. Investors who buy undervalued shares today could also enjoy strong returns in the coming years.
Identifying the best UK shares to buy now
Among the best UK shares to buy now could be cheap FTSE 100 stocks such as HSBC and IAG. Their share prices have fallen by 30% and 40% respectively in the past year. Although they face tough operating conditions in the short run, an economic recovery is likely to take place that could lead to stronger financial performances.
Similarly, companies such as BT and Glencore appear to have sound strategies through which to overcome challenging periods. BT is investing in faster speeds in its fixed-line and mobile networks that could improve its competitive advantage, as well as aiming to streamline its business model to reduce costs. Glencore is shifting focus towards low-carbon assets that may enhance its earning power in the long run. This may lead to improving investor sentiment in a global economic recovery.
Meanwhile, cheap FTSE 100 stocks such as Barratt Developments could be among the best UK shares to buy now. The housebuilder’s share price is currently down 10% over the past year. However, investors may be underestimating the potential for low interest rates and high demand for housing to create favourable operating conditions for the business. This may improve its financial performance in the long term, while its solid balance sheet could ensure it survives a temporary period of disruption over the coming months.
Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.