The Motley Fool

As inflation spooks markets, I’m looking for the best shares to buy on the dips

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Dictionary definition of inflation
Image source: Getty Images.

When looking for the best shares to buy, I primarily focus on the individual business, rather than what’s happening in the wider economy.

Does the company have a strong balance sheet? Is debt under control? Is its pension scheme a burden? How competitive is its market? What are the barriers to entry? Could a new challenger steal its customers? How sustainable is the dividend? Does the share price look undervalued or overpriced?

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

These will help me determine which shares are the best to buy for my portfolio. Doing my research like this doesn’t guarantee success, of course. No investor can guard against unexpected shocks. Either macroeconomic, such as the financial crisis or the Covid pandemic, or an individual company disaster, such as the BP Deepwater Horizon rig blow-out, or the Tesco accounting scandal.

I’m after the best shares to buy

One way I like to turn the odds in my favour is to put favourite stocks on my watch list after their share price has fallen. I love buying stocks on the dips, just as I like hitting the sales. Who doesn’t want to pick up quality business at a bargain price?

The FTSE 100 has had a good run lately, bursting through the 7,000 barrier. That’s despite investors increasingly fretting about the risk posed by inflation.

The shock leap in US inflation to 4.2% has concentrated minds. Many fear that monetary and fiscal stimulus pumped out to combat the pandemic will drive up costs and prices. There are signs of this already, with copper shooting past $10,000 a tonne, and lumber prices tripling.

Even the best shares my money can buy today will be vulnerable if inflation catches fire and forces central bankers to hike interest rates. Rising yields will also divert money out of equities, making bonds more attractive.

These stocks could combat inflation

If this scenario pans out (and it may not), then it still wouldn’t change my strategy. I’d keep hunting through the market for the best shares to buy today, with the aim of diving in whenever the stock market falls back.

Inflation may change the actual stocks I want to buy. Today, I’d focus on companies with pricing power, say, consumer staples firms Reckitt Benckiser Group and Unilever, and spirits giant Diageo, which has a strong range of premium brands. The concern here is that if inflation eats into people’s spending power, it’ll hit sales.

I might also look for the best shares to buy in the commodity sector, such as BHP Group and Rio Tinto. They should benefit from rising metal, mineral and energy prices. The problem here is that the stocks have been soaring, rather than dipping. So there may be less of an opportunity to snap them up at a discounted price.

I’m keeping an eye on inflation, but I’m not going to let it dictate my thinking. As always, my main focus is on the best shares to buy today. Unlike inflation, that’s something I can control.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, Tesco, and Unilever. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.