FTSE 100 shares could offer long-term capital growth potential from their current price levels. After all, the index continues to trade below its record high. This suggests many of its members could be undervalued at the present time.
Furthermore, the outlook for the world economy is widely forecast to improve in future. This may create more attractive operating conditions that makes FTSE 100 companies among the best stocks to buy now.
Clearly, they’ve risks ahead of them. But through diversification and obtaining a margin of safety it may be possible to reduce potential threats.
FTSE 100 shares trading at low prices
Many FTSE 100 shares continue to trade at prices that are significantly below their all-time highs. The lead index is currently around 10% down on its price level from a year ago. This suggests there may be opportunities to buy a range of companies while they offer wide margins of safety.
Investor sentiment towards some industries is weaker than towards others. For example, consumer goods companies have higher valuations than banks, retailers or travel & leisure businesses in general. This is understandable, since less popular industries among investors may face more challenging operating environments.
However, where FTSE 100 shares have the financial means to overcome future difficulties, they could offer recovery potential. In many cases, investors may have priced in the potential for weak financial performance in the coming months. Therefore, there may be scope for an expansion in valuations among today’s unloved industries. This could make large-cap shares among the best stocks to buy now.
The potential for an economic recovery
FTSE 100 shares may also be among the best shares to buy now because of their long-term growth prospects. Clearly, there’s never any guarantee that the world economy will post positive GDP growth. It continues to face major risks, such as coronavirus, that could hold back its performance for some time.
However, the scale of stimulus packages being rolled out and the vaccines being administered could allow many industries to face less disruption in future. This may contribute to improved operating conditions that strengthen their financial performances. The result of this effect on company valuations from across the FTSE 100 could be relatively positive over the coming years.
This may catalyse a period of stronger growth for many large-cap shares that’s not currently reflected in their valuations.
Reducing risks through diversification
Although FTSE 100 shares may have a size and scale advantage versus smaller peers, and may be more diversified than small-caps, they still carry significant risks. As such, it’s prudent to invest in a wide range of businesses instead of concentrating capital on a more limited number of companies. Doing so can reduce overall risks. And that can lead to higher returns in the long run.
