Identifying the FTSE 100 stocks worth buying after the index’s recent market crash may seem to be a tough task. After all, many stocks are experiencing challenging trading conditions. And those may persist over the coming months. As a result, this may lead to weak investor sentiment that hurts their investment prospects.
However, by focusing on financially-sound businesses with wide economic moats, you can take advantage of low valuations across the FTSE 100. Considering the index’s long-term recovery potential, now could be the right time to buy bargain stocks to boost your chances of retiring early.
Economic moats
Identifying whether a FTSE 100 company has a wide economic moat, or competitive advantage, isn’t an exact science. Much of an economic moat is subjective. However, assessing whether a business has a competitive advantage over its rivals could be a sound move. It may produce a more resilient financial performance in the current crisis. It could also be in a stronger position to capitalise on the likely economic recovery over the coming years.
Therefore, focusing your capital on companies that enjoy strong customer loyalty, lower cost bases than their rivals, or that sell unique products, could be a good starting point. They may provide more attractive risk/reward opportunities over the long run.
Financial stability
Of course, surviving the present economic downturn is the biggest priority facing any business. There’s little to be gained in buying a cheap stock that’s unlikely to still be around after what now seems to be a very likely recession.
As such, focusing on FTSE 100 stocks with modest debt levels and large cash positions could be a shrewd move. They may be less likely to require additional funding from their existing shareholders. They could even be in a good position to capitalise on low asset prices through acquiring their competitors.
Buying undervalued companies with strong balance sheets could make a significant impact on your return prospects in the coming years. However, some industries may experience weak operating conditions for many months. As such, only the strongest businesses survive.
FTSE 100 valuations
Valuations across the FTSE 100 are exceptionally low at present. However, simply buying the cheapest stocks may not prove to be a sound move. Considering their capacity to grow earnings (in what could prove to be a tough operating environment for a prolonged period of time) may improve your long-term returns. For example, companies that have outperformed their peers in past recessions and economic downturns may prove to be relatively valuable.
By considering the financial strength, economic moat, and overall quality of a company, it may be possible to obtain the best value opportunities in the FTSE 100. They may not necessarily be the cheapest stocks in the index after its recent crash. But they could be the most likely to boost your returns and to help you retire early.