How I’d find the best UK shares to buy for the next stock market rally

Buying shares at dirt-cheap prices before the next stock market rally can unlock enormous wealth. But where can I find these opportunities?

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.

Happy young female stock-picker in a cafe

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Buying the best UK shares before the next stock market rally could enable investors to reap impressive returns in the long run. While the FTSE 100 index has remained relatively flat throughout the ongoing bout of volatility, many of its constituents haven’t fared so well.

Industry leaders and rising enterprises alike have been sold off in recent months. Even firms with strong financial standing haven’t been spared, courtesy of panic-selling investors.

However, for patient investors, this storm has created countless buying opportunities for top-notch stocks at bargain prices. The question now becomes, how can I find them to boost my portfolio’s long-term performance?

Finding opportunities before the stock market rally

Technology is one of the industries to have been hit hardest during this correction. With most of these companies dependent on external capital, their once sky-high valuations have come crashing down to Earth. Why? Because access to funding is quickly drying up now that interest rates are rising.

With the sector subject to ever-weakening investor sentiment, some of these stocks are now trading up to 80% lower than a year ago. The unprofitable firms have been hit the hardest. Yet those with intelligent leadership issued new shares while their valuation remained lofty last year.

As such, many have enormous piles of cash to keep the lights on. And the more established enterprises are already self-sustaining, despite what the volatility would suggest.

Consequently, some of the best long-term bargains today could be in the tech industry or other sectors that’s lost favour with investors this year.

Obviously, the current economic environment is going to create some headwinds. And while these are ultimately short-term problems, they could lead to significant disruptions in the coming months. But once the stock market rally begins, these sectors could be looking at another decade of stellar growth. And buying while shares are still cheap is a proven recipe for substantial returns.

Buying dirt-cheap UK shares for the long term

While short-term disruptions are of little interest to long-term investors, they can significantly impact businesses.

To profit from the next stock market rally, the shares I buy from unpopular UK industries need to still be around once the chaos has settled. And in many cases, some companies have been sold off for good reasons.

Focusing solely on firms with robust balance sheets is likely a sensible move to mitigate this risk. However, additional external factors may be at play that aren’t immediately obvious. For example, a competitor could have quietly launched a new product that makes an entire business model obsolete.

Given the difficulty of spotting these game-changing events, especially during a time when everyone is focused on macroeconomic conditions, diversification is now even more critical than before. By not putting all my eggs in one basket, I can still capitalise on the next stock market rally while keeping risk in check.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »