The 2020 stock market crash has left many shares trading at relatively cheap prices. Ongoing risks such as the coronavirus pandemic and political uncertainty in Europe mean that the valuations of some companies have failed to rebound to their 2019 levels.
As such, there may be buying opportunities available on a long-term basis. Over time, the valuations of today’s cheap stocks could improve. In doing so, they could aid an investor in building a retirement nest egg from which to draw a passive income in older age.
Cheap stocks after the 2020 stock market crash The 2020 stock market crash has caused investors to re-evaluate their views on a number of sectors. For example, companies operating in industries that are being directly impacted by a weak economic outlook have seen their valuations come under severe pressure. They include sectors such as banking, energy and travel & leisure, where the profit growth potential of many businesses is likely to disappoint in the short run.
While some cheap stocks have weak financial positions and lack competitive advantages over their peers, others may currently be undervalued. Investors may have devalued companies operating in unfavourable sectors without understanding their recovery potential, for example. This may provide long-term investors with an opportunity to use the 2020 market crash to their advantage, in terms of buying high-quality companies at a discount to their intrinsic values.
A stock market recovery Today’s cheap stocks could deliver strong recoveries from the 2020 stock market crash. Ultimately, an improving economic outlook that provides more prosperous operating conditions is likely to come into existence over the coming years. The world economy has, after all, always recovered from its periods of decline to post positive GDP growth. And,with large amounts of fiscal and economic stimulus having already been announced in major economies, the outlook for the world economy could improve significantly in the coming years.
With undervalued shares having significant capital appreciation potential, they may offer a sound means of generating a retirement nest egg. Their appeal on a relative basis seems to be high. A sustained period of low interest rates could be ahead. This may mean that the returns on cash and bonds fail to beat inflation by a substantial amount.
And with high house prices being present in many economies, the prospects for property investors may be less attractive than for those investors who buy cheap stocks after the stock market crash.
A long-term outlook Clearly, a recovery after the market crash may take some time for today’s cheap shares. However, by taking a long-term view and holding high-quality companies through a likely bull market, an investor could improve their retirement prospects. They could even outperform the stock market through using its volatility to their advantage in the coming years.
The post Market Crash 2020: I’d Buy Cheap Stocks to Retire Early appeared first on The Motley Fool Canada.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020
This Article Was First Published on The Motley Fool
