A number of FTSE 100 stocks continue to trade at low price levels following a challenging year for the stock market. Their short-term prospects may continue to be difficult due to disruption caused by coronavirus. However, they could deliver impressive recoveries in some cases over the coming years.
As such, now may be the right time to buy a selection of cheap shares and hold them for the long run. Through building a diverse portfolio of stocks, it’s possible to limit overall risk and enjoy higher potential rewards in a likely stock market recovery.
Buying cheap FTSE 100 stocks for the long run
In the last year, FTSE 100 stocks such as Burberry have experienced hugely difficult operating conditions. The luxury goods business has been forced to close many of its stores due to lockdown measures. This has prompted a 20% fall in its shares in the last year.
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However, it’s seeking to adapt to this situation through ramping-up its online business. This may improve its competitive position in the long run, as consumers increasingly move online to purchase goods. Burberry has also received positive feedback from customers regarding its new designs. It’s also been focusing on becoming more efficient, which may lead to a leaner business that’s more adaptable to changing consumer tastes.
A resilient operating outlook
Other FTSE 100 stocks such as Taylor Wimpey have experienced resilient demand for their goods and services despite coronavirus disruption. The company recently reported a robust level of demand among homebuyers, which suggests that low interest rates have the potential to encourage a larger number of first-time buyers.
After a 20% decline in its share price over one year, Taylor Wimpey now has a forward price-to-earnings (P/E) ratio of around 11. This could include a margin of safety. Certainly if the outlook for the UK economy improves through the course of 2021. With a growing land bank and large cash balance, the stock seems to be well-placed for a recovery.
A challenging future that offers turnaround potential
Rolls-Royce has been one of the largest fallers among FTSE 100 stocks. In the last year, its share price has declined by over 50% because of grounded flights across the civil aerospace sector. This situation could remain in place for much of 2021. However, investors could look ahead to the return of fewer travel restrictions before they come into place.
The business has strengthened its capital position through an equity placing. It’s also been looking to cut costs through measures such as headcount reduction. In the long run, this could create a more streamlined business. Consequently, this should help place the business in a good position to benefit from a likely return to normality in the civil aviation industry.
As such, while it remains an unpopular stock, there may be turnaround potential on offer.
