The stock market rally following the 2020 market crash has led to many FTSE 100 shares having high valuations than just a few months ago. Despite this, it is still possible to unearth UK shares that offer wide margins of safety at the moment.
Certainly, they face tough operating conditions in many instances. This may mean that the shares experience high volatility. Similarly, losses cannot be ruled out over any time period.
However, the risks facing these two FTSE 100 stocks could be priced into their valuations. As such, they appear to have the potential to deliver improving performances in the coming years.
An improving financial outlook versus other UK shares
As a cyclical business, WPP (LSE: WPP) is arguably more dependent on the prospects for the global economy than many UK shares. As such, its performance has been impacted negatively by the world economic slowdown.
However, it could deliver a sound recovery in the coming years. In fact, the advertising company is forecast to post a 27% rise in earnings this year, followed by a 14% increase in its bottom line next year. Clearly, these are just estimates that may or may not be met. However, they suggest that the company is in a good position to capitalise on a return to economic growth in the long run.
Since WPP trades on a forward price-to-earnings (P/E) ratio of around 11, it seems to offer a wide margin of safety. Of course, this does not guarantee that its share price will rise from its current level. But it suggests that investors may have priced in some of the risks it faces. This may provide scope for capital gains that allow it to deliver a higher rate of capital appreciation than many other UK shares.
Growth potential versus the FTSE 100
The FTSE 100 is sometimes viewed as a slow-growing index compared to other UK shares. But Standard Chartered’s (LSE: STAN) outlook suggests this may not necessarily be the case. The global banking business is forecast to post a 60% rise in its bottom line this year, followed by further growth of 38% next year.
Although these forecasts may not be met in future, the bank’s price-to-earnings growth (PEG) ratio of 0.2 indicates that risks may be factored in to its valuation. This could mean that the company offers a favourable risk/reward buying opportunity for the long run.
Clearly, the banking sector is likely to struggle with a period of weaker economic growth and lower interest rates in many markets. However, Standard Chartered’s recent updates have shown it is making progress in implementing organisational changes and investing in digital growth opportunities. As such, its long-term prospects could be more attractive than the stock market is currently anticipating. This may mean its valuation could move higher over the coming years.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Peter Stephens owns shares of Standard Chartered and WPP. The Motley Fool UK has recommended Standard Chartered. 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.