Despite the recent stock market rally, many FTSE 100 shares continue to trade at relatively low levels. While they may be experiencing tough operating conditions that last for part of 2021, their long-term capital appreciation potential seems to be high.
Through buying such stocks, it’s possible to benefit from a likely stock market rise in the coming years. After all, the FTSE 100 has always recovered from its declines to post new record highs.
With that in mind, here are three UK shares that could offer long-term capital growth after disappointing performances in recent months.
Growth at a reasonable price
Burberry has underperformed many FTSE 100 shares over the last year. The luxury fashion house is down by over 20%. The retailer was hit hard by store closures while reduced air travel decimated its strong reliance on the patronage of high-spending tourists. This could continue through much of 2021.
However, the company’s performance in 2022 is expected to improve significantly. For example, it’s expected to deliver a 50% rise in net profit, as coronavirus restrictions are eased. Since it trades on a price-to-earnings growth (PEG) ratio of 0.5, this doesn’t seem to have been factored into its share price.
With a solid brand and large customer following, as well as a move into sustainability and digital avenues, Burberry’s share price prospects could be far more positive than investor sentiment indicates.
A recovery opportunity among FTSE 100 shares
Even defensive FTSE 100 shares such as Smith & Nephew have suffered in the current economic crisis. The company has experienced disruption within its operations. And that has negatively impacted on its financial performance over the last year.
Looking ahead, the company is forecast to post a 50% rise in net profit this year. Since it trades on a PEG ratio of 0.5, it seems to offer good value for money. With an ageing global population, the long-term growth trends within the company’s key markets could continue as coronavirus challenges reduce. This may mean now is an opportune moment to buy shares in Smith & Nephew while they offer a wide margin of safety.
Solid financial prospects during an uncertain period
FTSE 100 shares with solid financial positions could be especially attractive at the present time. They may be able to overcome challenging operating conditions within their industries. They may also be able increase their market share to produce improving profitability in the long run.
One example of such a business is housebuilder Berkeley. Its £1bn+ net cash position shows it has the financial means to not only survive the present economic crisis. But the group should also be able capitalise through acquisitions of land and take long-term investment decisions.
The company’s price-to-earnings (P/E) ratio of 14 indicates it offers good value for money. It could be a major beneficiary of a return to economic growth in the UK once coronavirus restrictions begin to ease.
Peter Stephens owns shares of Berkeley Group Holdings. The Motley Fool UK has recommended Burberry. 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.