A long-term stock market rally is likely to be based on an improving economic outlook. As such, UK shares that have experienced challenging periods in the past year and recorded price declines because of a weak economic performance could be among those to benefit the most from a recovery.
With that in mind, here are five FTSE 100 shares that have struggled to deliver improving financial performances in the last year due to tough operating conditions. Buying them now could lead to high returns for me in a market rally, and could even produce a portfolio valued in excess of a million.
UK shares with turnaround prospects
Among UK shares negatively impacted by a weaker economic outlook are housebuilders Persimmon and Barratt. Although they’ve recently reported resilient levels of demand from homebuyers, their share prices are still down over the last year.
In the short run, they could experience challenges from an end to the stamp duty holiday and economic weakness as the current lockdown takes its toll on consumers. However, their long-term share price performance could be catalysed by a likely continuation of the current loose monetary policy. They also have large land banks that may provide them with dominant market positions for many years.
Whitbread has also experienced difficulties during the pandemic. The closure of its hotels continues to negatively impact on its performance versus other UK shares. However, its recent update highlighted market share gains, as its large size and financial position aid it versus smaller peers. It also has growth opportunities in Germany, which could diversify its revenue and provide a stimulus as a stock market rally takes hold.
International growth opportunities
Other buying opportunities among UK shares include internationally-focused businesses such as Shell and HSBC. They appear to be in good positions to capitalise on a return to improved global economic growth.
HSBC has exposure to fast-growing economies in Asia. It’s also reducing costs and pivoting towards opportunities less reliant on interest rate levels. This could stimulate its financial performance.
Meanwhile, Shell is aiming to shift its asset base towards renewables. This may improve its long-term profit potential, as the world economy gradually moves to lower-carbon assets for its energy. The company may also benefit from a rising oil and gas price in the meantime.
Making a million
Making a million with UK shares may be a more achievable goal than many investors realise. For example, the FTSE 100 has produced an annualised total return of 8% since inception in 1984. Assuming the same rate of return on a £750 monthly investment would produce a £1m portfolio within 29 years.
However, through buying shares with long-term recovery potential, it may be possible to achieve higher returns. In doing so, the time it takes to make a million could be reduced.
Peter Stephens owns shares of Barratt Developments, HSBC Holdings, Persimmon, Royal Dutch Shell B, and Whitbread. 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.