Stock market corrections offer bargain shares. I’d grab cheap FTSE 100 stocks today

The 2022 stock market correction affected many British stocks, including those in FTSE 100. The overall index seems to have recovered from most of the damage.

But not all constituents have returned fully, including those who seem to resist the economic turmoil in the market.

Combining weak investor sentiment with depressed valuations is often a recipe for cheap buying opportunities. And considering the stock market has recovered from every crash and correction in history, now could be a good time to get your hands on some undervalued FTSE 100 stocks.

Focus on quality business

The lead index is home to the largest businesses listed on London Stock Exchange. But size does not always indicate quality. The stock market may have a perfect track record of recovering from economic downturns. But there have been and will continue to be many companies that eventually fail – even the big ones.

In other words, simply buying all the FTSE 100 stocks that have fallen the most over the past 12 months is likely to be a losing strategy. Investors need to dig deeper and find out why the stock price is falling.

The short-term disruption to earnings is less than an overleveraged balance sheet in a rising interest rate environment. In addition, if the business model has been disrupted or compromised, a depressed valuation may be justified.

But picking winning stocks isn’t just about finances. A company that lacks an identifiable competitive advantage cannot produce long-term results. After all, if there is no defense against rival companies or disruptive start-ups, capturing market share will be a futile struggle.

Even something as simple as a well-known brand can be quite powerful. Brands with a reputation for quality often command price power. So, customers may still be willing to pay a premium even if their budget is tight.

The best cheap stocks still have some risk

Even if investors identify the best deals in the FTSE 100 today, investment returns are never guaranteed. In fact, it is possible that buying stocks at the top right now could result in losses. At least temporarily.

Don’t forget that the stock market is driven by mood and momentum in the short term. And considering investor sentiment is very understandable right now, top companies can see their stock prices reduced for no real reason beyond general market fears.

Stomaching volatility is far easier said than done, especially if individuals begin to doubt their investment thesis. Often, investors sell excellent stocks at high prices, only to see them rise again a few months later.

That’s why careful analysis and conviction are essential to picking winning FTSE 100 stocks in the current market environment. And using strategies such as diversification and pound cost averaging can help reduce that risk.