Opening an ISA and buying FTSE 100 shares after the recent market crash may seem to be a high-risk strategy. The UK economy contracted by 20% in April, the largest monthly fall on record. As such, there could be a large amount of volatility ahead.
However, over the long run, a number of large-cap shares could offer growth potential. Their valuations suggest they offer wide margins of safety, which could make now an opportune moment to buy them.
With that in mind, here are two FTSE 100 stocks that appear to offer attractive risk/reward ratios after their recent share price falls.
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Next
The recent trading update from FTSE 100 retailer Next (LSE: NXT) showed the scale of impact that coronavirus has had on its financial performance. For the period from 26 January to 25 April, the company recorded a 38% decline in sales. This trend could continue in the near term, with its stores having been closed after the period end.
Furthermore, weak consumer confidence and social distancing measures may mean sales fail to return to normal levels, even as stores reopen from mid-June. This could mean the FTSE 100 business faces further negative sales.
However, Next seems well-placed to capitalise on a continued trend towards online retailing. It’s invested in improving the speed of its supply chain, seeking to become a more dominant online retailer for clothing and home products.
Furthermore, its recent update included a stress test that shows it could be in a relatively strong financial position to overcome weak sales in the short run. This may allow the business to improve its competitive position and increase its market share over the long term. As such, now could be the right time to buy the FTSE 100 retailer in an ISA.
FTSE 100 housebuilder Persimmon
Another FTSE 100 stock that’s experienced difficult trading conditions over recent months is housebuilder Persimmon (LSE: PSN). Construction work ground to a halt and the company closed its sales offices. Even though businesses are reopening across the sector, there are greater difficulties in obtaining mortgages. Weak consumer confidence may also weigh on demand for new homes in the coming months.
Persimmon’s cash position of £600m suggests it’s in a good position to survive a period of weaker sales in 2020. It was also making good progress in improving its customer satisfaction scores prior to coronavirus. That could also increase its chances of experiencing sustainable growth over the long run.
Looking ahead, demand for new homes is likely to return to pre-coronavirus levels over the medium term. Factors such as low interest rates and government support programmes could catalyse the FTSE 100 housebuilding sector. And that could boost Persimmon’s share price after its 15% decline since the start of the year. Therefore, it could offer improving capital returns over the long run.
