Every stock market crash presents opportunities to buy cheap FTSE 100 stocks. The market tends to overreact and overshoot in either direction depending on whether sentiment is panic or euphoria. This can drag solid companies down, even though their long-term prospects are fine. From this point of view, if you can invest in these firms during the crash, the potential to reap large rewards (and potentially make a million) is high.
Running on empty? Rolls-Royce Group (LSE: LON:RR) is synonymous with British engineering and manufacturing. Its main line of revenue comes from the aerospace arm of the business. It’s the second largest airplane engine manufacturer in the world.
While the share price has understandably taken a hit this year due to the fact that demand for engines has all but dried up, the size of the slump may surprise you. The share price for the firm trades around 258p, an 11-year low! It was 699p in February. This got me interested.
From a fundamental point of view, there are several drivers behind this move. The firm had traditionally been a solid dividend paying staple for income investors to buy into. Yet due to the pandemic, Rolls-Royce has suspended the dividend. There’s therefore not a strong pull from that angle. The firm is also indirectly tied to the fate of the airline sector, and with firms such as IAG (LON:ICAG) looking to make large layoffs, it hasn’t helped.
Start the engines So why invest now? Well to start with, if you’re looking to make a million from a FTSE 100 stock, buying at all-time highs isn’t the way forward. You have to take some risk and buy a stock which is trading at a large historical discount in order to stand to make large gains.
The business is also more diversified than you may think. It operates direct to businesses via aviation and marine parts, and to the government via defence equipment. So it does stand ready to weather the storm from at least one aspect of the business, as it has done successfully from decades of being publicly listed.
Finally, I for one am optimistic about a bounce-back in the airline sector in the mid term. I wrote my reasons why in more detail in a piece here, in which I disagreed with Warren Buffett on his call to sell airline shares. Given the correlation between Rolls-Royce and the airline sector, this should naturally lift the share price for the business.
My Foolish investing takeaway Making a million from investing is not something which is going to happen overnight. A successful investment will likely take several years to generate a substantial return. There’s nothing wrong with this at all. Patience and timing are two qualities every great investor has. So by buying into a firm like Rolls Royce at a discount during this FTSE 100 stock market crash, you can set yourself up for a longer-term reward.
The post 1 FTSE 100 stock I’m looking to invest in to make a million after the stock market crash appeared first on The Motley Fool UK.
Jonathan Smith and The Motley Fool UK have no position in any of the shares mentioned. 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
First published on The Motley Fool
