Identifying FTSE 100 shares that can deliver high returns is especially challenging at the present time. The UK and global economies face uncertain futures, with risks such as coronavirus potentially weighing on investor sentiment and company performance in the short run.
However, a number of large-cap shares appear to trade on low valuations at the present time. Buying them could lead to impressive returns as the economy recovers.
With that in mind, here are five UK shares that appear to have the capacity to double in value over the long run. Buying them in 2021 could prove to be a shrewd move.
FTSE 100 shares with 100% return potential
While the idea of generating 100%, or doubling an investment, on FTSE 100 shares may sound unlikely, the index has a long history of delivering impressive returns. For example, since its inception in 1984, the index has posted annualised total returns of around 8%. When compounded, they’re sufficient to double an initial investment over a 15-year time period.
Of course, the future returns of the index could be better or worse than they have been in the past. The future prospects for the index and the world economy are a known unknown.
However, the above example serves to show that the idea of doubling an investment on the stock market is not a freak event for a long-term investor. Certainly for those who are able to buy high-quality companies when they trade at cheap prices.
Buying opportunities for the long term
FTSE 100 shares that trade at cheap prices include companies that have experienced challenging operating conditions, such as Landsec and Shell. Demand for commercial property could increase as the economic recovery takes hold.
As such, Landsec’s price-to-book (P/B) ratio of 0.6 suggests it may be undervalued at the present time. Similarly, an improving outlook for the global economy, alongside its strategy to pivot towards low-carbon assets, could mean Shell’s price-to-earnings (P/E) ratio of 12.6 is attractive.
Meanwhile, companies such as NatWest and Legal & General could be undervalued. Legal & General currently offers a dividend yield of 7.4% that’s historically grown at a brisk pace. This could make it more attractive in a low interest rate environment. NatWest’s improving financial position and acquisitions could make it an appealing investment following its 40% share price decline since the start of 2020.
Other FTSE 100 shares, such as Auto Trader, appear to have sound market positions through which to deliver improving profitability. The online car marketplace is expected to post a 58% rise in earnings next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.5.
Given that further UK economic growth is likely to take place in the coming years, it could prove to be a profitable investment relative to the wider index that may even double in value.
The post FTSE 100: 5 cheap UK shares for 2021 I think could double my money appeared first on The Motley Fool UK.
Peter Stephens owns shares of Landsec, Legal & General Group, NatWest Group, and Royal Dutch Shell B. The Motley Fool UK has recommended Auto Trader and Landsec. 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.
Motley Fool UK 2020
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