The stock market has crashed! 3 things I’d watch out for when buying FTSE 100 shares now

Here are three attributes I’d focus on when buying FTSE 100 (INDEXFTSE:UKX) stocks.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 100’s recent fall could prove to be a buying opportunity for long-term investors. The index has always recovered from its various crises and bear markets to post new highs. This can sometimes take time, of course. But long-term investors can benefit from buying a diverse range of shares while they are cheap.

Indeed, through buying companies with sound finances and strong market positions while they trade on low valuations, you could capitalise on the FTSE 100’s recent crash. Over the long run, you could generate high returns which improve your financial prospects.

Sound finances

What is the most important consideration to make when buying shares at the present time? I think it is whether the business in question will survive the upcoming economic challenges. In the UK, and in many countries, restrictions on people’s movement are in place. This will cause challenging trading conditions for a wide range of businesses. And it could mean that their sales are significantly lower than they otherwise would be.

As such, it is logical to focus your capital on companies which have modest debt levels and strong free cash flow. Moreover, making sure they can afford their debt interest payments with severely reduced sales could be a sound move. And with many companies having banking covenants in place, ensuring they have sufficient headroom to comply with their covenants could be a good idea. It may mean they have a higher chance of overcoming short-term challenges to capitalise on the prospective recovery in the coming years.

Strong market positions

Companies with strong market positions could benefit from the current crisis. For example, they may be able to expand their market share due to present challenges affecting their peers to a greater extent.

Therefore, investors may wish to focus on companies which have wide economic moats. This could mean they have strong brand loyalty, lower costs than their rivals, or a unique product, for example. They may be better able to not only survive an economic slowdown, but to recover from it once restrictions on people’s movement are lifted.

Low valuations

The FTSE 100’s recent fall means that most stocks are now trading at significantly lower price levels than they were just a few months ago. However, as always, some stocks appear to offer better value for money than their peers.

This may not necessarily mean that they have the lowest valuations. Rather, it could be that their valuations are more attractive than their peers based on the quality of their business models. In other words, the cheapest stocks may not necessarily be the most attractive when their outlooks are taken into account.

Through buying good quality businesses while they trade on attractive valuations, you could generate high returns in the long run. The FTSE 100 may not recover quickly, but its track record shows that a bull market is likely to be ahead over the coming years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

Can Rolls-Royce shares keep on soaring in 2025?

2024 so far has been another blockbuster year for Rolls-Royce shares. Our writer thinks the share could still move higher.…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

Here’s the worst thing to do in a stock market crash (it isn’t selling)

When the stock market falls sharply – as it does from time to time – selling is often a bad…

Read more »

New year resolutions 2025 on desk. 2025 resolutions list with notebook, coffee cup on table.
Investing Articles

My top 2 growth shares to consider buying in 2025

For investors looking for top growth shares to buy in the New Year, I reckon this pair are well worth…

Read more »

Investing Articles

3 massive UK shares that could relocate their listing in 2025

I've identified three UK companies that may consider moving their share listing abroad next year. What does this mean for…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

2 common mistakes investors make with dividend shares

Stephen Wright outlines two common mistakes to avoid when considering dividend shares. One is about building wealth, the other is…

Read more »

Investing Articles

Here’s how I’ll learn from Warren Buffett to try to boost my 2025 investment returns

Thinking about Warren Buffett helps reassure me about my long-term investing approach. But I definitely need to learn some more.

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Here are the best (and worst) S&P 500 sectors of 2024

While the S&P 500 has done well as a whole, some sectors have fared better than others. Stephen Wright is…

Read more »

Investing Articles

2 FTSE 100 stocks I think could be takeover targets in 2025

If the UK stock market gets moving in 2025, I wonder if the FTSE 100 might offer a few tasty…

Read more »