Stock market crashes can be demoralising times for investors. The sharp drops in investment values are enough to make anyone cringe. But so long as we can keep steady, I think stock market crashes can be the best times to invest our money in cheap UK shares and look forward to doubling it much faster than would otherwise be possible.
The hidden potential in stock market crashes
As during the corona-crisis and the recession that followed, a stock market crash happens when investors start panic-selling. This impacts even those stocks that otherwise have great values. Cheap UK shares, as a result, are no longer companies with iffy prospects – they include financially healthy companies with positive potential too.
Investors that can identify these stocks and buy them at their lows stand to gain a lot. As an example, consider the FTSE 100 healthcare giant, AstraZeneca, which has gained 40% from the lowest it crashed to in March. In fact, its share price is now at all time highs, helped by its Covid-19 research.
What makes cheap UK shares
Many other FTSE 100 shares have gained much since the stock market crash as well. While the number has fallen, some of them are still very much around. But first, what makes a cheap UK share? Not the absolute share price. By that metric, Lloyds Bank, with its price at around 30p, would be one. In figuring which share to buy, I much prefer to use the price-to-earnings (P/E) ratio, which gives a better idea of where a stock stands compared to similar stocks.
FTSE 100 shares to double the money
By this metric, a cheap UK share is the FTSE 100 multi-commodity miner, Anglo American, which has a P/E of 7.2 times. Compare this to AstraZeneca with a P/E of 75 times. AAL is a financially healthy company that’s weathering this time well. And it pays a dividend.
Another cheap UK share is the FTSE 100 property developer Barratt Developments, which also has a P/E of 7.2 times. Like all other real estate companies, it too suffered quite a bit because of the lockdown and property markets’ sensitivity to recessions. Its share price has recovered somewhat, but is yet to go back to its pre-crash highs. I think there’s some pain in store as the slowdown in the economy plays out fully, but going by its past strength, I think BDEV is one for the long-term investor.
The FTSE 100 Irish construction company CRH is another stock I like. With its sub-7 P/E ratio, dividend payouts, financial stability, and geographical diversification, I can’t see what’s not to like. Like BDEV, it too may suffer in the short term, because construction has been affected by the economic slump, but it’s a matter of time before it bounces back.
I think all these stocks are good bets to double your investments in the next few years, making them among the best (but still cheap) UK shares to buy now.