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Stock market rally: I think these are the best UK shares to buy now

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Chart showing an upwards trend, possibly in the FTSE 100
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Buying the best UK shares today could be a sound long-term move. After all, indexes such as the FTSE 100 and FTSE 250 have always successfully recovered from their various downturns to produce new record highs.

As such, purchasing today’s undervalued companies may mean there’s significant scope for capital growth in the coming years.

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With that in mind, here are six shares that have experienced very mixed performances in 2020. Looking ahead, they appear to have the right strategies to deliver improving performances and could benefit from a stronger economic environment in the coming years.

UK shares with solid performances in 2020

Persimmon and Morrisons could be among the best UK shares to buy now. Even though their performances have generally been robust this year, they may benefit from a stock market rally in the coming years.

Persimmon has a strong balance sheet and a large land bank that could sustain profit growth in the coming years. Low interest rates may mean that demand for new homes remains robust, and even improves as the economy recovers.

Similarly, Morrisons may benefit from improving consumer confidence in 2021, as an economic recovery is likely to take hold. Its expansion into online shopping may provide it with a stronger market position relative to value-focused sector peers.

The potential to benefit from a stock market rally

A stock market rally may lift the prices of UK shares such as IAG and IHG. Both companies have suffered greatly from the 2020 stock market crash. Should a rally take hold in the coming years, it’s likely to be based on an improving economic outlook. This could mean the operating environment within the travel and leisure sector is strengthening.

Since IAG and IHG seem to have relatively solid balance sheets, they may outlast smaller and weaker peers in the current economic crisis. The end result could be stronger competitive positions that allow them to benefit to a greater extent from a likely recovery in demand over the long run.

An improving global economic outlook

UK shares such as BP and Rio Tinto have experienced mixed performances this year. Despite the stock market rally, BP’s share price is still around 45% down on its 2020 starting price. However, its plan to invest in low-carbon assets could lead to improving financial performance in the long run.

Meanwhile, Rio Tinto’s shares may have further capital growth potential, despite their 20% rise since the start of this year. The mining company could benefit from an expected economic recovery in 2021 that prompts rising demand for iron ore and other commodities.

With the company having maintained a solid balance sheet and strong cash flow, it appears to be in a good position to outperform many of its sector peers in the coming years.

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Peter Stephens owns shares of BP, Morrisons, Persimmon, and Rio Tinto. The Motley Fool UK has recommended InterContinental Hotels Group. 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.

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